Drop-Dead Gorgeous Stocks

"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 further, 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:

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 15% and 85% of its value over the past year alone and currently sits at or near its five-year low. (However, Agria in particular stretches the definition in arriving on MSN's "five-year low" list, since it's been public less than one year.)

Wall Street has left 'em all for dead, but on Main Street, their popularity runs the gamut from loathed (National City) to loved (Spherion). Seeing as we're looking for the company most likely to turn the corner, there's only one firm here that we want to look at today:

The bull case for Spherion Corp

• NetscribeBusServ introduced us to Spherion early last year: "Spherion Corporation ... provides temporary staffing services, managed services and permanent placement services in the U.S. and Canada. Temporary staffing services include personnel in ... information technology, finance and accounting, legal, engineering ... [where demand] for skilled workforce is increasing ... Demographics of the labor force continue to indicate that the overall labor pool may shrink over the next 10 years, creating a shortage of qualified job candidates. This shortage would translate companies to use services provided by Spherion."
  
• But with our economy on the cusp of a recession, won't that derail Spherion's growth story? Not in the long term -- at least not according to CAPS All-Star Spiceman53, who opined in December 2006 that because "people are living longer ... they have to go back to work part time or occasionally with temp. jobs. Plays right in to Spherion." So the long-term view looks good for Spherion. But not everyone wants to wait around for a long-term success story to play out. Can investors hope for more immediate gratification?
• dbillett1 thinks that just might happen, because "in a market where unemployment is on the rise, future prospects look good."

Now there's a buy thesis for you. A slow economy will dampen demand for labor at employers ... but that increases the demand for companies that are able to scrounge up what temp jobs remain. (And with a roster of clients that ranges from Cisco (NASDAQ:CSCO) to Honeywell (NYSE:HON) to Time Warner (NYSE:TWX) to UAL (NASDAQ:UAUA), Spherion sure looks up to the task.) So the logic's a bit contrarian -- but I like it.

And I like the valuation here even more. Based on its trailing profits -- and while I agree that the future may not look bright, the employment picture hasn't been particularly great in the recent past either -- Spherion looks awfully cheap. The company sells for a P/E of just 12, yet if the analysts are right on this one, it will grow its profits at 25% per year. Can you say "0.5 PEG ratio"?

If that doesn't get your mouth watering, then consider this: Based on its free cash flow, Spherion is even cheaper than at first sight. The enterprise value-to-free cash flow ratio on this one comes in under 6.0. With Spherion's stock down nearly 40% over the past year, Mr. Market is handing you a bona fide bargain here, and throwing in the silver platter for free.

Time to chime in
But hey, that's just my opinion. As other Fools have pointed out on Spherion's CAPS page, the company does carry a hefty slug of debt. If the cash profits keep pouring in, that should pose no problem. If, on the other hand (and notwithstanding dbillett1's optimism), a slowing economy dries up the cash flow, there could be problems galore.

Which way do you see things playing out? Click on over to CAPS and tell us what you think.