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 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:

Company

52-Week High

Recent Price

CAPS Rating (out of 5)

Intel (Nasdaq: INTC  )

$29.27

$20.19

*****

Infinera (Nasdaq: INFN  )

$8.90

$4.35

*****

Veolia Environnement (NYSE: VE  )

$17.17

$9.42

*****

France Telecom (NYSE: FTE  )

$17.28

$10.31

*****

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
Last week was another rough one for stock investors, as a 1.5% slip in the S&P 500 sent more than 300 separate stocks tumbling to new 52-week lows. Can any of them bounce back?

CAPS members respond with a full-throated "yes, they can!" as our chart of 52-week low hitters is populated with nothing but Fool-y supported, five-star-rated stocks today. But which of these four five-stars is worth of your support? Let's work from the bottom up:

Blame it on Europe
Pundits will tell you that a big part of the reason stock markets slid last week is Europe. On Wednesday, a report showed eurozone industrial output declining 2.5% in September, even as anti-austerity strikes spread across southern Europe.

The turmoil over there suggests that declines in valuation at Veolia Environment and France Telecom may be justified. After all, while most reporting focused on strikes in Spain and Portugal, protests also took place in Greece and France. (Both Veolia and FT are based in France).

Factor in the tenuous financial position of both firms -- Veolia is sitting on $19 billion in net debt, with a $5 billion market cap, while France Telecom sports a staggering $41 billion net-debt load -- and it's hard to fault investors for selling off the stocks, their large dividend yields notwithstanding. At some point, something's got to give. And with the recent example of Telefonica canceling its dividend to look to ...

Well, let's just say that if the dividends go away, there'll be very little left to like in either of these stocks.

Infinera's finite future
What about Infinera, then? We all remember how AT&T's (NYSE: T  ) announcement of a big expansion in capital spending helped lift the stock of Alcatel-Lucent (NYSE: ALU  ) and similar telecom equipment stocks a couple weeks ago. Sadly, though, Infinera was not one of the beneficiaries of investor optimism.

Why not? Call me a crazy realist, but I suspect one reason investors shied away from Infinera, even as they were grabbing up shares of Alcatel and Ciena (Nasdaq: CIEN  ) , is that TInfinera's financials look so very, very awful.

If Alcatel can woo investors with claims that it's earning $1.1 billion a year, and Ciena can point to positive free cash flow, then Infinera kind of looks like the odd man out in telecom equipment. Unlike Alcatel, even GAAP accounting can't be twisted into a shape that suggests Infinera is earning a profit. (It's actually losing close to $89 million a year). And as far as cash goes, Infinera's burning it at an accelerating rate, sending more than $100 million up in smoke over the past 12 months  alone.

Long story short, I'd rather be short this one than long.

Intel -- a more intelligent choice?
Finally, we come to Intel. Worries  about reduced sales estimates at Dell (Nasdaq: DELL  ) and Hewlett-Packard (NYSE: HPQ  ) bled over into Intel last week, turning its ticker red as well. But unlike the companies discussed so far, there's actually some good news we can report on Intel.

Namely, with a valuation of just 8.5 times earnings -- or even the more conservative 12.4 times free cash flow -- Intel shares actually look kind of cheap today. Sure, weakness at Dell and H-P may weigh on earnings in the near term. But longer term, analysts still see Intel growing earnings at close to 12% per year over the next five years. Paying 12-ish times FCF for 12%-ish annual growth seems a fair deal to me. Add in Intel's generous 4.5% dividend yield, and I'd say the stock's even cheaper than it looks.

Foolish takeaway
Members of Motley Fool CAPS see a lot they like in all of the five-star stocks on today's list. If you ask me, though, there's really only one stock you should be looking at to add to your portfolio today: Intel.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant. Better yet, you'll continue to receive updates for an entire year. Click here now to learn more.


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