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." I run the 52-week-lows list compiled by Nasdaq.com through the "wisdom of crowds" meter that we call Motley Fool CAPS, producing 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 that 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	Recent Price	CAPS Rating (out of 5)
Iridium Communications  (Nasdaq: IRDM  )	$6.95	****
Energy Conversion Devices (Nasdaq: ENER  )	$9.36	****
SearchMedia Holdings	$6.05	****
K-SEA Transportation  (NYSE: KSP  )	$8.97	***
PennyMac Mortgage	$16.25	**

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

Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 13% and 65% of its value over the past year alone, and currently sits at or near its five-year low. But with the notable exception of the unfortunately named "PennyMac Mortgage," whose name combines all the unsavory connotations of penny stocks, junk food, and subprime mortgages, investors still expect most of these stocks to bounce right back.

But if there's one stock here with the potential to bounce right outta the stratosphere, and into low-earth orbit, it's gotta be the four-star Iridium Communications … or so our CAPS members believe. Let's find out why.

The bull case for Iridium Communications 
It's been more than a decade since this Motorola (NYSE: MOT  ) spinoff made headlines by going bankrupt, doomed by a business plan based on customers paying $7 a minute for the privilege of toting heavy, brick-sized satellite phones. But late last year, Iridium returned to the public markets when the special purpose acquisition vehicle "GHL Acquisition" pumped money into the company. Already, investors are taking notice.

Roto1177 calls Iridium a "Spec play." While the concept of global, literally pole-to-pole cellphone coverage has its appeal, the field's already rife with competition. Smaller rivals include the likes of Globalstar and KVH Industries. More troubling is the challenge from upstart rival SkyTerra Communications -- which has Boeing (NYSE: BA  ) backing its play.

Even so, if you ask nangofandango, there's nothing speculative about Iridium. To the contrary: "They're lining up big contracts regularly." (Customers range from Bremen-based Beluga Shipping, to Raytheon (NYSE: RTN  ) , to the Pentagon itself.) "Insiders continue to accumulate piles of shares, owning >20% … They're projected to earn $1.12 in 2010." Last but not least: "Their Iridium NEXT sounds like it will give them a jump on competitors' future satellite capabilities." (And if SkyTerra has Boeing, Iridium may land Lockheed Martin (NYSE: LMT  ) as its allied satellite builder.)

Valuation
From a value investor's perspective, it's hard to see Iridium as anything but speculative. The stock currently trades for the princely-seeming sum of 40 times trailing earnings. Yet it has limited analyst coverage, and no public projections for its long-term growth rate.

Sure, analysts expect earnings to rebound this year, resulting in a current-year P/E of just 6.2. And Iridium does generate significant free cash flow these days -- $30 million over the last 12 months, or 2.5 times what Iridium reports as profit under GAAP. But until we have a better idea of how fast Iridium can grow these earnings, it's hard to say whether the price is right.

Time to chime in
As a numbers-centric investor, I can't say whether Iridium is "drop-dead gorgeous" at today's price. Since beauty has always been in the eyes of the beholder, what do you think about Iridium?

If you've got an opinion, we've got a place to state your case: Motley Fool CAPS.