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.

It's been awhile, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:

Company	52-Week High	Recent Price	CAPS Rating (out of 5)
Schlumberger (NYSE: SLB  )	$95.64	$59.73	*****
Freeport-McMoRan (NYSE: FCX  )	$61.35	$30.45	****
Southern Copper (Nasdaq: SCCO  )	$50.35	$24.99	****
Micron (NYSE: MU  )	$11.95	$5.04	****
E*TRADE (Nasdaq: ETFC  )	$18.13	$9.11	****

Companies selected from list of stocks hitting new intraday 52-week lows as reported on finviz.com. Recent price and 52-week high provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

The week in weak stocks
Last week wasn't a great one for stocks, as more than 800 of Wall Street's best and brightest hit their lowest prices in the past year. E*TRADE fell hard on worries that the SEC was scrutinizing it, and other discount brokers, for posing possible "systemic risk" to the financial markets. Micron fell even harder, as the company surprised investors with a fiscal-fourth-quarter loss, when it had been expected to show a profit.

Meanwhile, the commodity markets are turning into a real mess. Copper prices are off more than 20% from recent highs, and this has been devastating for the market prices of key producers Freeport-McMoRan and Southern Copper -- now paying a massive 9.9% dividend! Oil's not doing much better, and it's doing a number on the share price at oil-field services giant Schlumberger.

Through all the turmoil, though, Fools are keeping a steady hand. Even as their portfolio values plummet, CAPS members remain stubbornly optimistic about the prospects at all five of these stocks, assigning above-average star ratings to each. The one Fools love best, though, is five-starred Schlumberger. Let's find out why.

The bull case for Schlumberger
CAPS member troym72 observed in late August that "Schlumberger just report record revenue for Q2 2011. I think they are going to shatter wall street expectations for FY2011."

That's a pretty aggressive prediction, but it's not without historical support. As CAPS member ipsiety points out, the company has achieved "top line growth of 15% for the past 5 years," and boasts a 19% return on equity.

In CAPS member MFBajanCajun's opinion:

Schlumberger is miles ahead of its nearest competitors... in a field that WILL, sooner or later, 'pop' again. (and again, and again, and again...) Until a real game-changer comes along in the energy industry, oil is tightly interwoven into the fabric of life on planet earth ... Schlumberger helps Oil Majors to get oil out of the ground, and they do it more & better than anyone else.

I don't disagree. But the real question is: Is the price right?

Drilling for value at Schlumberger
At 15.5 times earnings, Schlumberger shares look more expensive than Halliburton's (NYSE: HAL  ) 11.3 P/E ratio, but right in line with the 15.2 ratio at Baker Hughes (NYSE: BHI  ) . Even worse, at a 17% growth rate, the company is expected to grow slower than either Halliburton or Baker Hughes, both of which are currently pegged for long-term earnings growth in the mid-to-upper 20s.

To my Foolish eye, however, Schlumberger has one advantage Halliburton and Baker Hughes lack: strong cash production. Schlumberger generated $1.7 billion in free cash flow over the past 12 months, more than 10 times Halliburton's cash haul. Meanwhile, Baker-Hughes was actually FCF-negative for the period. Schlumberger also has a long history of consistent free cash flow generation, which bolsters confidence in its ability to keep growing.

Foolish final thought
Admittedly, I personally have no desire to own Schlumberger at this price. While it may have the highest "quality of earnings" of the three oil-field services majors named, its free cash flow isn't quite as strong as I'd like to see. But Fools looking for a strong cash generator that's selling for an attractive PEG ratio and paying a decent dividend might want to give the stock a look.

Looking for more ways to extract profits from the oil patch? Fellow Fool Abantika Chatterjee has found five big opportunities in oil-field services. Read about them here.