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 have 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 of these stocks -- if any -- Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "New Highs and Lows" lists at WSJ.com:

Stock	52-Week High	Recent Price	CAPS Rating (5 Max):
Atwood Oceanics  (NYSE: ATW)	$63.46	$13.85	*****
Permian Basin Royalty Trust  (NYSE: PBT)	$27.80	$13.13	*****
Penn West Energy  (NYSE: PWE)	$35.49	$10.49	*****
Chesapeake Energy (NYSE: CHK)	$74.00	$11.32	*****
Sierra Wireless  (Nasdaq: SWIR)	$21.18	$5.02	****

Companies are selected from the "Nasdaq New Highs and Lows" list published on WSJ.com on the Saturday following close of trading last week. Recent price and 52-week high provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

What goes up must come down
Wall Street appears to be taking the old saying to heart this week. Nearly every fossil-fuel-related stock is following oil's price per barrel down to 52-week lows. Yet Foolish investors remember the reversion to the mean theorem: "What goes down will eventually go back up."

Topping their list of "things destined to go back up," therefore, are stocks domiciled in the oil patch -- drillers, drilling rights-holders, and gas suckers all dominate the five-star rankings on CAPS. In contrast, my favorite stock of the bunch this week is the one lacking a place on the hydrocarbon seesaw: wireless-modem maker Sierra Wireless. I'll tell you in a moment why I like it. But first, let's see why our CAPS members give this one an above-average four-star rating.

The bull case for Sierra Wireless

• CAPS member kmandallas introduced us to Sierra Wireless last year as "a well managed and innovative company" that is "well connected with the world's wireless hardware manufacturers and wireless operators." It's true -- Sierra Wireless has strategic alliances in place with such leading lights as Qualcomm (Nasdaq: QCOM) and LM Ericsson (Nasdaq: ERIC).
• Why is this a good thing? TechGooRoo argued last year that "cellular providers are racing to provide high-bandwidth wireless networks to compete with broadband modems." Our CAPS member continued: "It's still too close to call to see who will own the wireless EV-DO modem market, but the good news is that the market appears to be big enough for both [Sierra Wireless and Novatel] right now."
• CAPS All-Star cbwang888 likes Sierra Wireless simply because it's a "profitable company sold below [book value] and only $2 above cash."

Works for me, but I should point out a couple of things. First, cbwang888 wrote that pitch two months ago. Since then, the cash situation has changed both for the better and the worse. On the better side of things, Sierra Wireless is trading for almost $2 per share less than the cash on its books today. On the worse side, it's about to spend essentially all of its cash -- and even take on some debt -- to make an acquisition.

Now, Wall Street doesn't seem to like this development, but you should. Over the past 12 months, Sierra Wireless generated $53 million in free cash flow. In contrast, the company it is buying, Wavecom, burned $22 million in cash. The way I look at it, though, post-merger, this will still leave a larger Sierra Wireless with $30 million in trailing cash profits -- and a price-to-free cash flow ratio of just 5.

From where I sit, considering that analysts were expecting Sierra Wireless to grow at a 21% clip over the next five years without getting bigger via buying Wavecom, this looks like a pretty compelling value. And while Wall Street doesn't seem to realize this yet, eventually it will.

And that's when this stock is gonna bounce.

Time to chime in
Or so I think. I could be wrong -- and you should feel free to disagree. Head on over to Motley Fool CAPS, and tell us what you think.