Get Ready for the Bounce

"Don't catch a falling knife." Thus commandeth the old saw (to mix a cutlery metaphor).

But if people weren't tempted to catch cutlery in the first place, there'd be no need for this little bit of investing wisdom, would there? The idea of buying a former highflier at a discount price certainly has its attractions. The trick, of course, is to increase the odds that when you make your grab, you're catching haft, not blade. That's where we come in.

In The Motley Fool's continuing effort to keep your investing dollars safe, today we once again assume our position beneath Mr. Market's silverware drawer. As the knives plummet, we'll measure who's fallen farthest. Then we'll head over to Motley Fool CAPS and ask Foolish investors which of these stocks they think are ready to rebound to new highs -- and why.

With that said, let's meet today's list of contenders, drawn from the latest "52-week lows list" at MSN Money:

Knives and knaves
Most stocks on MSN's "shot" list don't even have CAPS ratings; they're too small and too illiquid to merit inclusion in our service. But every week, a handful of new contestants enter our field of view. Some we're familiar with and have already assigned ratings to. Others, like Corriente and Himax above, remain unknown quantities (see below for how you can help change that).

Ready to bounce?
Of course, knowing who's fallen hardest is only half the battle. You still need to decide whether to reach out and grab the knife. That's where CAPS comes in. We've assembled more than 18,000 investors (and counting), and invited them to tell us which stocks they expect to outperform or underperform the S&P 500.

In this week's group, we see two companies sit very high in the esteem of CAPS-playing Fools. Both Panacos and Youbet.com are just one star shy of our highest rating. Today, let's take a look at Youbet.

If you follow gaming stocks at all, then you no doubt noticed when Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 earlier this year, banning the transfer of funds from U.S. customers to online gambling sites. Immediately following its passage, shareholders of companies such as GigaMedia (NASDAQ:GIGM) and Cryptologic (NASDAQ:CRYP) saw their shares fall 12% and 18%, respectively.

One company that survived the carnage was Youbet, which was exempted from the above ban by virtue of its regulation under the Interstate Horseracing Act. That exemption hasn't prevented its stock price from falling, though. Does that present us with a bargain? Here's what investors say:

• Summarizing the investment thesis, CAPS all-star abliviax points out: "A lot of people like gambling, its addictive, its a mathematically sound business guaranteed to make money, and running gambling online is like running a casino where everyone is guaranteed to be honest," concluding, "How hard can that be to run?"
• Another all-star, mtimko, likes Youbet's "good growth and relatively fixed costs in safe (horse racing) online betting business," adding that it's a "first mover in a growing market."
• And why is it growing? bsharvy explains: "Legal gambling in the US will see an increase in business, as online poker loses it."

Do you buy the arguments? Disagree? Either way, let us know in CAPS. You see, Motley Fool CAPS is the great equalizer. Here, it doesn't matter whether you work for an investment bank or as a teller in a bank, whether you've got a CFA attached to your name or you're still working toward your B.A. If you've got knowledge to contribute on one of the stocks named above, come on over and tell us about it.

Motley Fool CAPS: Where all investors have their say, and the best arguments carry the day.

Foolanthropy is celebrating its 10th year! To learn more about our five Foolish charities or to make a donation, visit www.foolanthropy.com .

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 44 out of more than 18,000 raters. Panacos Pharmaceuticals is a Rule Breakers pick. CryptoLogic is a former Hidden Gems selection. The Fool has a disclosure policy.