Get Ready for the Bounce

"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) Buying a former superstar stock at a discount price has its attractions, but you must make sure you catch the haft -- not the blade. That's where Motley Fool CAPS comes in.

Today, we once again stand beneath Mr. Market's silverware drawer, to measure which knives have fallen the farthest. Then we'll call on CAPS to ask which of these stocks -- if any -- Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "52-Week Lows" list at Nasdaq.com:

Knives and knaves
If there's one good thing about a broad-based market sell-off, it's that you find a lot of terrific companies getting the old baby-'n'-bathwater treatment, tossed out on their rosy little bums as if they were bums of another sort. You know -- just know -- that some of these babies are gonna bounce right back.

If you'll pardon the mental imagery, CAPS players agree that four of the stocks on today's list deserve to be drowned at birth. But there's one they'd fish out of the wash if given a chance. That stock: home and small-business networking specialist Netgear. And hey -- it's even a Motley Fool Stock Advisor recommendation! Fancy that.

Stock Advisor members already know why we love this company. But what about the broader world of investors? Why are they so eager to log on to Netgear? That's what we aim to find out, as we explore...

The bull case for Netgear
CAPS All-Star ShuntSD argued a couple of months ago:

As the population goes wireless, so goes Netgear. It took years for baby boomers to get wired into the internet and the natural progression to wireless is [under way]. They provide entry level products and have secured market share.

Multiple CAPS players highlight Netgear's relationship with electronics uber-retailer Best Buy (NYSE: BBY). Rebb observes: "This company has a strong presence at Best Buy and other electronics retailers. It's not considered top of the line but is perfect for the mass market, especially with wallets being a little tighter these days."

All-Star player tenmiles notes that at today's price, Netgear "looks interesting from [a] longer term perspective." Our player continues: "Pristine balance sheet -- debt free with almost $6/share in cash, representing over one third of current market value. Strong value metrics on this one with attractive PEG, [return on equity] almost twice expected forward [price-to-earnings ratio] and trading around 1.5x book."

From a competitive perspective, it's hard to argue that Netgear is a leader. Best Buy notwithstanding, if you examine the "top sellers" pages at Amazon.com (Nasdaq: AMZN) and Circuit City (NYSE: CC), they're both showing a clear consumer preference toward products made by Cisco's (Nasdaq: CSCO) Linksys subsidiary.

Conversely, arguing that Netgear can't bounce is equally hard. The stock trades for a bargain-basement P/E of 13, even as analysts predict long-term growth in the neighborhood of 16%. Turning to free cash flow, we find Netgear selling for a bit less than 14 times last year's number (management didn't provide a cash flow statement in last week's earnings report), which looks nearly as attractive. Assuming the company's eventual 10-Q filing doesn't contain any nasty surprises on the cash-flow front, I'd say Netgear is looking mighty attractive at these levels.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Netgear -- or even what other CAPS players are saying. We want to hear your thoughts. Head on over to Motley Fool CAPS, and tell us what you think.