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 furthest. 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:

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

Knives and knaves
Once again, our list proves the converse of the "everybody loves a winner" maxim. When a stock falls on hard times, its popularity evaporates right quick. CAPS members pan two of the companies on today's list with below-average ratings; two more get only a middling three stars. Only one company here receives above-average marks -- and boy is it a doozy.

Let's dive right in and check out ...

The bull case for LG Display

• Lobachevsky introduced us to LG Display back in December: "This South Korean company is one of the leading producers of LCD display screens for computers and HDTVs. This market will continue to grow rapidly in the near future, particularly with the growth in notebook and smaller-sized computers."
• sodasarah believes that: "In a sluggish economy, sales of 'luxury non-essentials' like flat panel televisions are sure to be down. That said, when the economy turns around we'll look back at this stock at $14 and think 'I shoulda ... ' LG has creative marketing that backs up quality products. A good combination."
• Why shoulda ya? At the risk of stating the obvious, CAPS All-Star NoTouch5Yr asks that you consider this company's: "very attractive P/E, excellent EPS growth rate, and high five year growth prospects."

Just how attractive are these numbers? I'll be happy to tell you. But you won't believe me:

• The trailing price-to-earnings ratio is 3.3. (And no, I did not misplace a decimal.)
• The price-to-free cash flow ratio defies belief by being cheaper still: 2.3.

I know. It seems too good to be true, and to an extent, it is. The tricky thing here -- and the reason the P/E is so low -- is the growth. According to Capital IQ, the consensus of the 30 analysts tracking LG Display's Korean shares (two American depositary receipts per Korean share) is that it will earn a bit less than $6 a share this year. Earnings will then drop off a cliff in 2009, to $4.08 per share, and proceed to rise from then on, ending up in 2012 very close to where they started: $5.78.

How do you evaluate a crazy earnings trend like this one?

• You could say, "3.8 times this year's earnings is cheap, period," and leave it at that.
• Similarly, you could argue that if the 2012 estimate pans out, then the expected 3.8 times valuation is worth waiting for, so buy now.
• Or you could look out one year, hope next year's earnings pan out, and calculate: 5.4 times 2009 earnings is still pretty darn cheap. And profits are expected to grow faster than 12% per year after next year's drop.

Whatever rationale you choose, I think you're right. This stock is ultra-cheap any way you look at it. Whether it bounces tomorrow, or waits a few years to rebound, there's only one direction it can go in the long term: up.

Time to chime in
But if that's true, why is LG Display down more than 40% over the past year? If LCD TVs are such a hot commodity, why is Sony (NYSE:SNE) down 20%, and Corning (NYSE:GLW) down 12%?

Those aren't rhetorical questions. We really want to know. Click on over to Motley Fool CAPS and tell us what you think.