Get Ready for the Bounce

"Don't catch a falling knife," as the old saw commands. (Pardon my mixing in 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 a while, 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:

Companies selected from the 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
The Dow Jones Industrial Average tacked on a respectable 0.75% Friday, capping its best-performing week of the year. And yet, as most stocks rebounded, many stocks didn't. Up above you see five of the unlucky ones: five stocks currently plumbing 52-week lows. Will any of them bounce?

Perhaps. At AU Optronics, for example, things are looking grim. The high-tech contract manufacturer is up to its hips in debt -- well over $5 billion net of cash, at last count. It's burning cash like crazy, it's GAAP-unprofitable, and it's unlikely to break even for at least another year.

In contrast, NII Holdings sports a hefty debt load of its own, but it is profitable (from a GAAP perspective, at least) and growing smartly. Wall Street analysts have NII pegged for 18% long-term earnings growth, and investors were recently cheered by a spate of insider buying. One corporate officer and two members of the board of directors have made a combined $322,000 worth of stock purchases over the past month. That's a pretty sizeable bet on the company, and made by the people who know NII best.

Granted, both these stocks sport only mediocre three-star ratings on CAPS. So let's move up a level and look at the more optimistically rated four-stars. Here, two stocks stand out for their focus on the beleaguered coal industry. Lowballed by natural-gas prices, King Coal is having a hard time finding a market (at a profit) for its goods. As a result, Alpha Natural is currently operating at a loss, and it's expected to keep losing money for at least another year. Arch isn't doing much better, either. While sporting an attractive P/E ratio of 14 today, weak profit forecasts have the stock trading at 305 times what it's expected to earn next year. That's hardly encouraging.

And then there's Baker Hughes.

The bull case for Baker Hughes
Priced under 10 times earnings and less than nine times what it's expected to earn next year, Baker -- an oil-field services company -- looks much more promising than its coal-focused cousins. Long-term growth estimates are strong, with 21% annualized growth projected on the Street, and Baker also pays a modest 1.5% dividend yield.

CAPS member doesnotcare calls Baker a "solid energy company," while marshgator says it combines "high expertise with limited competitive players in a growth industry" (which Baker itself made happen when it bought key competitor BJ Services back in 2009).

All-Star investor buffalonate believes "we will eventually figure out how to use all of our cheap natural gas which will bring prices up. When the prices normalize the need for drilling rigs will go back to a more normal level," which will improve profits at Baker Hughes. In the meantime, Wade32ru argues that patient investors should go bargain shopping: "All oil and gas service names are pretty cheap right now. Fwd PE is 9.6 - that's cheap for a company that is growing revs at an impressive clip."

A Foolish caveat
All of this sounds pretty convincing -- and tallies well with earnings growth projections on Wall Street. The thing that worries me about Baker, though, isn't that it's not earning enough today; to the contrary, last year's $1.7 billion in net profits made 2011 Baker's second-most-profitable year ever, next to the $2.4 billion earned in the heady "peak oil" days of 2006. No, what worries me here is that historically, Baker has done a poor job of holding onto its profits and translating them into cash. Free cash flow for the past 12 months amounted to negative $1.3 billion, and Baker hasn't had a year in which FCF matched reported income, much less exceeded it, in nearly a decade.

Now, if reported earnings are all you care about, that may not be a problem. You may be willing to take Baker at face value -- it certainly looks cheap enough. If, on the other hand, you're like me and prefer to see cash in hand before handing over your own cash, you may want to leave Baker Hughes alone and look elsewhere for oil opportunities -- in which case, here are three ideas to get you started in our new Fool report on three stocks for $100 oil.