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, to measure which knives have fallen the farthest. Then we'll call on CAPS to ask which -- if any -- of these stocks Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "52-Week Low" list at Nasdaq.com.

Knives and knaves
Once again, our list proves the converse of the "everybody loves a winner" maxim. When a stock falls on hard times, its popularity evaporates very quickly. Nearly all of the stocks on today's list bear a marquee name brand, but they've also got another thing in common -- they're not particularly well liked these days. With one exception: BT Group, better known as British Telecom to its friends.

What is it about this Anglican AT&T (NYSE: T) analog that appeals to investors here in the Colonies? That's what we aim to find out as we examine ...

The bull case for BT Group

• According to CAPS All-Star netzmacht last summer, "BT is leading the transition of old-school telcos regarding modernization of networks, introduction of new services and cost management."
• Modernizing how, you ask? RandomWalk07, writing from Ireland, informed us more than a year ago: "Because BT used to be the monopoly phone supplier in the UK, most UK investors look on BT as a stodgy old phone company ... [but] I think they're missing the real story. ... BT will build a worldwide IP network and as the business world moves to an increasingly interconnected, outsourced, [application service provider-oriented] world these networks become essential. ... The BT retail division will continue to throw off good revenues and with the help of some innovative services (IP TV etc) may even grow significantly."
• Yet another All-Star investor, this time B33bl3br0x almost a year ago, called BT a "value play with a cash flow and debt problem. It is finally realizing more of its $$ on the bottom line and is earning excellent ROA and ROE. ... I think they have made a financial [turnaround] that will bolster its share price over the next couple of years."

"Value play?" I'll say. Selling for less than seven times trailing earnings, and projected to grow at 9% per year over the next half-decade, BT looks priced to move.

On the debt question, BT carries a hefty slug of long-term debt and has a debt-to-equity ratio significantly higher than those of AT&T, Verizon (NYSE: VZ), or Sprint (NYSE: S) here at home. That said, the cash-flow "problem" is less a problem and more of an annoyance. BT generates more than enough cash to pay interest on its debt, and although the company is barely generating more free cash flow than it reports as net income, as recently as 2006, that situation wasn't as tight.

Put it all together and wrap it with a bow, and I'd say that, yes, BT does look like a bounce candidate to me. And even if it doesn't bounce, you still have the company's tidy 4.7% dividend for your trouble. In an era of declining interest rates -- and therefore declining returns on everything from bonds to bank accounts -- that's a significant factor.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about BT Group -- or even what other CAPS players are saying. We really want to hear your thoughts. After all, much of what's been written about BT is just as true of AT&T or Verizon -- and Verizon even echoes BT's 4.7% dividend yield. Do you see a reason to own one over the other? Click on over to Motley Fool CAPS, and tell us what you think.

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