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 Nasdaq.com's 52-week-lows list through the "wisdom of crowds" meter we call Motley Fool CAPS. The result: 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 headroom, maybe a stock that's fallen even farther, and 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'll test that theory today, starting with five stocks that just hit their five-year lows:

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 65% and 90% of its value over the past year alone, and currently sits at or near its five-year low. Wall Street's left 'em for dead, but Main Street investors are challenging that decision.

Disinclined to dump these stocks at multiyear lows (except for B of A, for obvious reasons), CAPS investors may instead be ready to double down on some of the most beaten-up stocks in the energy sector.

Of the four energy-sector stocks on our list, Provident looks like the biggest target. Its market cap is nearly twice that of the other three combined. Could this stock hold something worth salvaging? Let's find out, as we examine ...

The bull case for Provident Energy Trust
rcborbon introduced us to the company back in November: "The company is in the business of producing and delivering natural gas and other industrial fuels and is geographically positioned to provide those fuels to the Atlantic seaboard. Also, the oil and gas it produces is not located in a politcally unstable country." (To clarify, Provident works up in Canada, right next door to Suncor (NYSE:SU) and Penn West Energy (NYSE:PWE).)

CAPS All-Star ddberg sees a lot to like in Provident, writing last year that it has:

more potential catalysts ... than some of the more popular Canroys. 1. Greater exposure to natural gas ... This can be a drag, too, when natural gas prices drop, but in the long-run, especially with the attention on how "clean burning" our various non-renewable energy resources are, I think natural gas heads north ... 2. More diversified in terms of operations (natural gas, oil and gas refining, and their highly under-appreciated business in pipelines) and investments ... [and finally] 4. As with all Canroys, the potential for the Conservative party in Canada being replaced by the Liberals ... and the tax legislation (which will remove many of the benefits of being a royalty trust starting in 2011) being reversed.

But even if the tax remains in place, fellow All-Star kurtdabear agrees that this one's a buy. As this investor wrote in October: "The way CanRoys are being treated at the moment, you'd think fossil fuels had been replaced by some amazing new discovery. Even with a depression looming, the U.S., China, India, etc., will need to keep importing oil & gas; and with Mexico rapidly receding from the picture, Canada is the logical beneficiary of the U.S.'s chronic shortfall."

One Fool's view
Nonetheless, there's no denying that Provident is struggling in the (relatively) low-price oil environment. The firm's dividend payout ratio looks a bit high, at 155% (according to Yahoo! Fiannce.) Worse yet, Provident has run free cash flow deficits for three years in a row, and it has negative operating earnings -- both of which put its ability to fund dividends in doubt.

What could turn the situation around? Provident addressed the question just last week. Management cut its dividend by one-third, to a more sustainable nickel each month. It's also slowing down its "capital program," reducing capex to levels that "emphasize sustainability, fiscal prudence, and particularly in the current economic climate, preservation of balance sheet strength." Yet this still leaves the stock yielding more than 16%, based on today's share price.

Time to chime in
Does this fat yield justify plunging back into Provident just two years before its tax benefits evaporate? Do you worry that low-priced oil could cause management to slash the dividend even further? Here's your chance to tell us what you think about Provident.

Click on over to Motley Fool CAPS and give us a shout.