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 Lows" list at WSJ.com:

Company

52-Week High

Recent Price

CAPS Rating (out of 5)

Elbit Systems  (Nasdaq: ESLT  ) $67.84 $48.65 *****
EnerNOC (Nasdaq: ENOC  ) $37.00 $23.32 ***
National Bank of Greece  (NYSE: NBG  ) $6.70 $1.72 ****
Deutsche Bank (NYSE: DB  ) $82.17 $50.55 **
PulteGroup (NYSE: PHM  ) $13.91 $6.20 *

Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Friday last week. 52-week high, recent price, and CAPS ratings from Motley Fool CAPS.

Thanksgiving week was a glum one for many investors, as the Dow turned tail and "gobbled" up 1% of our market cap. And for investors unlucky enough to have owned any of the five stocks named above, the news was particularly bad.

As Deutsche Bank and National Bank of Greece continued to muddle through the European debt crisis, an unexpected rout in new home sales knocked the stuffing out of Pulte here at home. Meanwhile, EnerNOC suffered as Foolish investors began to question the quality of the firm's earnings

As for Elbit Systems … well, there wasn't any actual news to explain the stock's dip. Sometimes, it seems investors don't require a reason to sell off defense stocks anymore -- they just do it by force of habit. Yet Foolish investors in particular remain pretty optimistic about this tiny Israeli defense shop. Wanna know why?

So do I. So let's find out, as we dig into …

The bull cash for Elbit Systems
Why buy Elbit? CAPS All-Star rainmaker59 sums up his sentiment elegantly, if not particularly optimistically, in three words: "bearish on peace." Incidentally, this presents the flip side of the argument Staka made earlier this year. Elbit, says Staka, "will profit from a world moving towards more tensions." (Meanwhile, Elbit has "fast growth," a "low forward P/E," and a tidy 2.3% "dividend" working in its favor.)

Summing up, CAPS member dgoldmeier recently called Elbit "a solid company with a nice div. in a world which will continue to grow demand for their product lines." And I agree… to an extent.

In many ways, Elbit seems to resemble larger U.S. defense contractors such as Boeing (NYSE: BA  ) , with which Elbit competes, and General Dynamics (NYSE: GD  ) , with which it's allied. The forward P/E ratios are comparable (Elbit's a bit cheaper than Boeing, a bit pricier than General D). Elbit's expected to grow a bit faster than either of the bigger companies, and it pays a slightly smaller dividend yield.

Bigger is better
Yet given the similarities, I have to ask myself: "Why buy Elbit?" In a world of decreased defense spending, it seems to me that bigger companies have a better chance of demanding their fair share of whatever defense spending "pies" are on the table. Being a nimble competitor may be great in a growth environment, but North Korea's antics notwithstanding, I'm still not optimistic that's "where we're at" in the defense cycle right now.

In short, it seems to me that discretion is the better part of profit today. The slow, steady, and dividend-rich will win this race. For that reason, I'm going to stick to my guns and argue that defense investors are best advised to place their bets on larger defense contractors for now, and put off investing in Elbit for better days. The stock might bounce in the short term, true (indeed, the last time I predicted it would, it did). But longer-term, I still think a larger company like Lockheed or Boeing is the better play.

Time to chime in
Disagree? Hey, it's a free country -- and CAPS is a free website. If you think Elbit's getting short shrift here, click over to the site right now, and tell me why I'm wrong.

General Dynamics is a Motley Fool Inside Value selection. EnerNOC is a Motley Fool Rule Breakers recommendation. The Fool owns shares of National Bank of Greece.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 620 out of more than 170,000 members. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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