Drop-Dead Gorgeous Stocks

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"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."

So goes the thesis of my weekly Fool.com column "Get Ready for the Bounce." Therein, I run the 52-week-lows list compiled by Nasdaq.com through the "wisdom of crowds" meter that we call Motley Fool CAPS. And out the other end comes a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.

But is there a way to cash in on fallen angels who've plummeted even further? Perhaps. If a stock that's fallen for one year straight has headroom, then maybe a stock that's fallen even farther, and longer, has room to soar back even higher -- in which case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with five stocks that just hit their five-year lows:

	Recent Price	CAPS Rating (5 max):
WuXi PharmaTech  (NYSE: WX)	$5.98	***
PHI Inc	$15.00	***
Arbitron (NYSE: ARB)	$14.03	**

Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.

Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 50% and 80% of its value over the past year alone and currently sits at or near its five-year low. Wall Street has left 'em for dead, and Main Street isn't much more optimistic -- the best stocks on the list get only a half-hearted three-star rating.

Yet, today we see the softer side of the Crash. So many stocks have fallen so far already this year, that finally, at long last, fewer and fewer of them are hitting five-year lows. Why, we didn't even have enough five-year bottom-plumbers this week to fill out our full five-stock table! Begging the question: Could this be the bottom? And if so, is it time to go fishing?

If it is indeed time, then I must say that WuXi PharmaTech looks like the best bet of this last bunch of five-year-low stragglers. For those not familiar with the company, WuXi performs outsourced pharmaceutical research for such giants as Eli Lilly (NYSE: LLY), Merck (NYSE: MRK), and Pfizer (NYSE: PFE). Why is that a good business to be in? I'll let our CAPS pitchers fill you in:

The bull case for WuXi PharmaTech

• acbinvestor introduced us to WuXi earlier this year: "[WuXi PharmaTech] is the best drug research companies in China. With its huge talent pool and the enormous market potential in China, sky is the limit. By setting up the first life science award in China, [WuXi] solidified its leadership status in China. The move enables [WuXi] to establish close ties to Chinese officials, academic researchers, potential talent pool and other industry insiders."
• According to CAPS All-Star tskephart: "Pharmaceutical R&D is a very expensive part of the pharmaceutical market. I feel their will be a paradigm shift on how global pharmaceutical companies approach research, one of the results will be more outsourcing and collaborations. WuXi is positioned well to take advantage of this shift."
• The Fool's own TMFBiologyFool agreed back in May: "Pharma is trying to cut costs and there's no better place to get high quality scientists on the cheap than China."

And speaking of cheap ... WuXi sure looks the part. The company sells for a mere 11 P/E despite analysts agreeing that it will increase those earnings by about 25% per year over the next five years.

Because the company only reports its free cash flow at year-end, we don't know how much of those earnings are "real" right now. But last year, the company generated $25 million in free cash flow, and if WuXi is still growing as fast as the analysts think, this year should be even better. Meanwhile, WuXi has plenty of cash on the balance sheet and trades for only 1.2 times book value.

Now mind you, WuXi's not my favorite play on Chinese medicine. If push came to shove, I'd probably prefer China Medical Technologies (Nasdaq: CMED) over WuXi, and I like Mindray Medical (NYSE: MR) best of all. But that doesn't change the fact that any way you look at it, WuXi qua WuXi looks like a bargain.

Time to chime in
Of course, that's just my opinion. Click on over to Motley Fool CAPS and tell us yours.

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