Get Ready for the Bounce

"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to 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, measuring 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 Low" list at Nasdaq.com:

	52-Week High	Recent Price	CAPS Rating (5 max):
Embraer (NYSE: ERJ)	$52.83	$33.27	*****
Nokia  (NYSE: NOK)	$42.22	$26.13	****
CDC  (Nasdaq: CHINA)	$10.22	$3.13	***
American International Group (NYSE: AIG)	$72.91	$33.93	**
General Motors (NYSE: GM)	$43.20	$16.22	*

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

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 ol' 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 once the suds subside.

This week, fishing around in the wash, we've pulled out for you a perfect inverted pyramid of stocks. Main Street sentiment runs the full range from one to five stars on these five Wall Street rejects.

Which of the five shall we highlight today? I admit to being strongly tempted to focus on four-star Nokia -- a personal favorite of mine -- but Brazilian plane maker Embraer edges it out by virtue of one extra star, and a recommendation from Motley Fool Stock Advisor. So, let's examine why everyone (Wall Street excepted) loves Embraer:

The bull case for Embraer

• deathbevo introduces us to the company: "Embraer-Empresa Brasileir de Aero (ERJ) is an interesting company with a hot product... personal and mid-sized passenger jets. What really sets them apart is the fuel economy of the product offerings. With fuel prices continuing to rise, customers are queueing up for Embraer-Empresa's jets. With a healthy back-log for their jets, the skies the limit with this stock."
  
• CAPS All-Star metoo105 agrees and, in February, itemized Embraer's pluses: "1. Sector: aerospace order books are about as full as they could be. 2. Subsector: small and very small LJs are the frigging future; meanwhile ERJ is slowing getting bigger and bigger... 3. Locations: in Brazil and China give a competitive advantage; ERJ will be for Brazil what Boeing (NYSE: BA) has been for the US... 4. High Energy Prices: everyone wishes they had already updated their fleets last year... 5. Mgmt: since I have watched this company, I have been impressed over and over again."
  
• Mattro88 echoes several of these sentiments: "This stock is down 14% in the past year, and the numbers look good now. Plenty of buyers for regional jets worldwide, healthy backlog of orders. I expect this globalization trend to continue. Phenom jets flying ahead of schedule suggests good management. [Boeing] Dreamliner is a different class and will not compete."

I have to agree that the numbers look good here. The stock trades for a 15 P/E, and analysts expect 15% annual growth going forward -- that's your target 1.0 PEG ratio right there. Dig a little deeper, though, and this story gets even better. Embraer generated $690 million in free cash flow last year, making the price-to-free cash flow ratio a downright cheap nine.

Comparing Embraer with a couple of its publicly traded rivals, Boeing looks slightly cheaper with nearly as much growth and a P/FCF ratio of six. General Dynamics (NYSE: GD), in contrast, looks downright expensive at 15 times free cash flow, with a growth rate only half Embraer's. So personally, while I prefer Boeing stock to Embraer, I have no reservation endorsing both companies. At this valuation, Embraer's bound to gain altitude eventually.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Embraer, Boeing, or General Dynamics. We really want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.