Drop-Dead Gorgeous Stocks

"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 the thesis of my weekly Fool.com column "Get Ready for the Bounce," where I run the 52-week-lows list compiled by Nasdaq.com through the "wisdom of crowds" meter we call Motley Fool CAPS. Out the other end comes a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.

But is there a way to cash in on fallen angels who've plummeted even further? Perhaps. If a stock that's fallen for one year straight has room to rise, perhaps a stock that's fallen even farther, for even longer, has room to soar back even higher. In that case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with five stocks that just hit their five-year lows:

Company	Recent Price	CAPS Rating (out of 5):
Kimberly-Clark  (NYSE: KMB)	$50.45	****
M&T Bank  (NYSE: MTB)	$48.10	**
Wilmington Trust	$19.21	**
Flushing Financial  (Nasdaq: FFIC)	$10.55	*
Protection One  (Nasdaq: PONE)	$4.07	*

Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.

Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 25% and 65% of its value over the past year alone, and each currently sits at or near its five-year low. Wall Street has left 'em for dead, and Main Street investors are inclined to agree -- for the most part.

But we're not yet ready to give up hope on Kimberly-Clark. Really, regardless of how bad the economy gets, will people really give up blowing their noses on Kleenex? Will we really let our toddlers run around the shag rug Huggies-less? I think not.

The bull case for Kimberly-Clark
Why not? As oxsigtech reminded us in August: "Toilet paper is not an option." Sound advice.

ricardorubiosr expanded on the logic a bit back in June:

During a recession or inflationary period the products from Kimberly-Clark always will be needed, in spite of higher prices. Also, [Kimberly-Clark] is a global company with almost half of it sales and profits coming from the Developed and Emerging markets of Latin America, Eastern Eurpe, Asia and Oceania which are growing at a double digit rate, not only in dollars but in volume, and market shares in most of the countries are #1 or #2 against other global and local competitors.

Wrapping up with a big-picture verdict on investment potential, jmackman opines:

The last 18 months have given us both grief and gifts. Dump the grief and buy the gifts. Historically high dividends in solid quality companies are the gifts. [Kimberly-Clark] is just one good example.

The difference between "safe" and "good"
In the midst of a recession, there's good reason why the stocks holding up best against the downdraft have names like Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG), Energizer Holdings (NYSE: ENR), and ... Kimberly-Clark. When times are tough, investors seek safe harbor in the consumer-staples sector, because these companies sell the stuff that people must buy in good times and bad.

The logic's simply unassailable -- so why don't I buy it? Simply put, while I agree that the recession won't kill Kimberly-Clark, I don't expect any great growth out of it once the economy recovers. Right now, analysts have it pegged for less than 8% annual growth over the next five years. That's not just slower than the industry average -- it's also the slowest expected growth rate posited for any of the four firms above.

To me, such upper-single-digit growth just doesn't justify the company's 12 P/E ratio (or its slightly worse price-to-free cash flow ratio). Not when you can buy two more points of annual growth for just a 13 P/E at J&J, or a 16 P/E at P&G -- or an honest-to-goodness sub-1.0 PEG ratio at Energizer.

Time to chime in
That said, I suppose there's an argument that recessionary times should spur investors to put "growth" on a back burner and stick to dividend investing. And Kimberly-Clark certainly boasts the richest dividend yield of the four consumer-staple sellers named above; at 4.6%, that payout has won the company a place in the Motley Fool Income Investor portfolio.

Should that fat dividend command our focus today? Tell us what you think.

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