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've got 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, measuring 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 "52-Week Lows" list at Nasdaq.com:

Knives and knaves
If there's one good thing about a broad-based market sell-off, it's that you find a lot of terrific companies getting the ol' baby 'n' bathwater treatment. Tossed out on their rosy little bums as if they were bums of another sort. You know -- just know -- that some of these babies are gonna bounce right back once the suds subside.

Does anyone really doubt that well-heeled shoppers will flock back to Starbucks and Whole Foods in droves once the economy revives? That they'll buy Carter's clothing for their little ones, and Best Buy electronics for themselves? Fools know better, as indicated by the fact that not a single company on today's list of 52-week low-hitters gets a below-average star rating -- and we have not one, but two four-star companies to choose from. Speaking of which, this may be the only time this decade I get a chance to discuss GE in this column, so let's focus on that one for today's bull thesis.

The bull case for General Electric
More than 1,000 investors have penned "pitches" for and against GE on CAPS. More than 1,000 CAPS "All-Stars" (investors ranked in the top 20% of their peers) have assigned the stock up-or-down ratings. Today, we'll hear from three of these uber-investors as they sing GE's praises, starting with ...

• claygrant1974, who writes: "This is a global, diversified play on infrastructure of all types (including alternative energy and water), not to mention jet engines and entertainment. I can't believe it is so cheap right now. Buy tons of it."
• InvestorDeb makes a superb case: "General Electric's Renewable Energy Portfolio is growing at a 25% annual rate and has gone generally unnoticed. In 2002, General Electric purchased Enron's wind business for less than $400 million; it is now projected to produce nearly $6 billion in sales upon an overall estimated 2008 revenue base for GE of about $190 billion, dwarfing nearly every other alternative energy play. Arguably, this has been one of GE's best acquisitions in two decades, certainly the best of Chairman Immelt's tenure. Unlike other alternative plays, General Electric's wind business has no technology risk (and no carbon emissions!) and is the most economically attractive and scalable renewable energy resource. It also makes a great deal of money. Today, the wind subsidiary accounts for almost 6% of total manufacturing sales. On a valuation basis, both absolutely and relative to the market (and certainly relative to other alternative energy companies), General Electric has lowly 12.8 times P/E and 15.4 times cash flow multiples. The shares are particularly attractive as its growing alternative energy and infrastructure businesses are well-positioned for revenue growth and margin expansion in a slowing and inconsistent economic environment."
• Steady growth in good times and bad -- that's a quality dgarber906 also finds attractive: "GE ... is a steady stock, rather than a rocket. The multiple is attractive and the fundamentals are good. I think that the flight to quality makes this a good play, along with the international exposure and alternative energy. -The dividend is also a nice icing on the cake. -It won't make you a mint, but it appears safe and I think 'safe' is the new sexy."

Prepare to be shocked -- I like GE, too. Not only is this one of the premier names in business, not only does GE pay a rich 3.8% dividend, but the company sells for a below-market P/E of 15 -- and it boasts so much more free cash flow than it reports as net income, that its price-to-free cash flow ratio comes to just a little more than 11. Weighed against 11% projected long-term profits growth, this means that you now have the chance to own an obviously "great" company at a merely "good" price. Chances like this don't come around often in this life. Grab it while it lasts.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about GE -- or even what other CAPS players are saying. We really want to hear your thoughts. Is there method to Mr. Market's madness in marking down GE so mightily? Click on over to Motley Fool CAPS and tell us what you think.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.