Get Ready for the Bounce

"Don't catch a falling knife." Thus commandeth the old saw (to mix a cutlery metaphor).

But if people weren't tempted to catch cutlery in the first place, there'd be no need for this little bit of investing wisdom, would there? The idea of buying a former highflier at a discount price certainly has its attractions. The trick, of course, is to increase the odds that when you make your grab, you're catching haft, not blade. That's where we come in.

In The Motley Fool's continuing effort to keep your investing dollars safe, today we once again assume our position beneath Mr. Market's silverware drawer. As the knives plummet, we'll measure who's fallen farthest. Then we'll head over to Motley Fool CAPS and ask which of these stocks Foolish investors think are ready to rebound to new highs -- if any.

With that said, let's meet today's list of contenders, drawn from the latest "52-Week Low" list at Nasdaq.com:

52-Week High

Currently Fetching

CAPS Rating

Zimmer Holdings  (NYSE:ZMH)

$94.38

$68.30

****

Patterson-UTI Energy  (NASDAQ:PTEN)

$28.21

$19.64

****

Columbia Sportswear  (NASDAQ:COLM)

$70.93

$48.15

****

Diebold  (NYSE:DBD)

$54.50

$40.79

**

WellCare Health  (NYSE:WCG)

$128.42

$31.36

**

Harte-Hanks  (NYSE:HHS)

$28.78

$17.20

**

Midas (NYSE:MDS)

$23.73

$16.54

*

Companies are selected from the "NASDAQ 52-Week Low" list published on Nasdaq.com on the Saturday following close of trading last week. 52-week high and current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Knives and knaves
Once again, we find Mr. Market in a generous mood. Sure, not every stock that it is discounting looks like a keeper (at least, not in the estimation of CAPS players). But three of them do: orthopedic implant-maker Zimmer, Motley Fool Hidden Gems recommendation Columbia Sportswear, and Patterson-UTI all sport low prices that seem strikingly at odds with their high CAPS ratings. Which of these three shall we profile today?

Call me selfish, but I'm most interested in the one I know least about -- onshore contract driller Patterson. Let's learn about it together as we examine ...

The bull case for Patterson-UTI Energy

  • CAPS All-Star TXwildcatter introduces us to the company in this pitch from last November. "PTEN provides drilling rigs and services to natural gas E&P companies in the North American market which continues to be hot, and should continue to be. Consolidation is possible in this part of business, PTEN could be on buying or selling end. Good buy below 24, Price will fluctuate in short term with how cold this winter is. If warmer [than] normal, look for good buy. If average or colder, good buy now."
  • To which fellow All-Star lotrjim replied just a few days later: "I saw a furry caterpillar (in Alabama), going to be a rough winter :)"
  • And just for kicks, let's see what the chartists have to say about Patterson. Excerpting from a long discussion by Gumfactor posted last month: "This stock is looking ripe and juicy. First off, it's sitting with a minuscule P/E of 5.82. ... But more than that, technical considerations point very strongly to the possibility that that time may be now. ... the stock has quite a history of sharp rises and sharp falls, each of which represents a wonderful opportunity. ... while the future is often more complicated than these simple patterns, I'd be willing to predict ... the stock at between $30.00-$35.00 within the next 6 months. Perhaps not coincidentally, that would give the stock a P/E of about 10 ... which seems more reasonable than its current level."

Personally, I'm no good at gauging industry cycles. When I see a stock trading just north of a P/E of 5 (it's currently at 5.25), and predicted to grow earnings at about 7% per year over the next five years, sure, I'm as tempted as the next Fool to pull out my checkbook. But one thing is worth noting here: Analysts think Patterson's going to earn significantly less profit next year, giving it a forward P/E ratio of 10 -- which looks a lot less attractive to me in light of the single-digit growth rate.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Patterson-UTI -- or even what the other CAPS players are saying. We also want to hear your thoughts on the company. Will a recession put the hurt on Patterson's 25% profit margin? Or are analysts being too pessimistic in their profit projections, and could this stock bounce when they're proven wrong? Click on over to Motley Fool CAPS and tell us what you think.


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