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 WSJ.com:

Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Thursday and Friday last week. 52-week high, recent price, and CAPS ratings from Motley Fool CAPS.

Must all good things come to an end?
Not necessarily. Oh, I know I've been saying these past few weeks that the end of the market's perpetual sell-off has deprived us of screaming bargains. But as it turns out, the advent of earnings season -- and earnings disappointments -- is pulling a few highfliers back into value territory.

In today's list, we find Fools highlighting four (count 'em, four) stocks that they'd love to own. Two even win the coveted CAPS five-star rating, which might set us up for a difficult decision today, choosing which one to profile. "Fortunately," that decision isn't as hard as it might seem. Beloved as it is of investors in general, Haemonetics looks way too pricey for me even at this 52-week-low. In contrast, the more I look at it, the more I think Quidel spells "Quality" with a capital Q. 

The bull case for Quidel Corp
If you've never heard of Quidel, don't feel bad. In the world of diagnostic testing, it's nowhere near as well known as diagnostic specialists like giants Quest Diagnostics (NYSE:DGX) and LabCorp (NYSE:LH). Rather, Quidel operates more in the "back office," competing with diversified scientific instruments manufacturers like Thermo Fisher Scientific (NYSE:TMO) and Becton, Dickinson  (NYSE:BDX) in selling diagnostic products. But just because the company doesn't send you a bill directly every time your doc prescribes a blood test doesn't mean it's not making money.

• To the contrary, CAPS member maryandtommy wrote just over a year ago that: "The wave of the future in health care diagnostics [is] rapid point of care results, no wait for transit to a lab and culture growth, eliminating the need for [follow-up] visits/calls for results/answers."
• Member darksarab agreed, writing a couple of months previously: "Healthcare needs have been trending towards more in office tests and treatments for quite a while. This is one of those rare cases where the demand for the comapany's products will be able to drive it no matter what the market is doing. This one is well positioned in a growing market with no end in sight."
• DonewithCorpAmer saw an especial reason to own the company about the same time early last year upon noticing that: "Flu season is turning out to be more intense. [Quidel] makes the flu tests."

Problem was, that was short-term thinking -- and in the short term, conditions can change. Last week, in announcing first-quarter earnings, Quidel reported "a significant decrease in the number of doctor visits for influenza-like illness as well as overall patient visits" (emphasis added). As a result of lessened incidence of illness, people needed fewer tests, and as a result of this, Quidel reported miserable earnings -- a $0.09-per-share loss on a 59% revenue decline.

Now here's the good news: Things don't often go so badly for Quidel. Fact is, the firm generated $24.8 million in free cash flow last year and nearly as much the year before. If we posit this number as the company's "normal" performance, then thanks to last week's sell-off, we now have a chance to buy this business for less than 12 times its usual annual free cash flow, and that's not even considering how the company's $49.5 million in net cash improves the valuation.

If we further posit that analysts are right and we agree that Quidel will grow these profits at about 20% per year going forward, then this becomes a real steal of a deal.

Time to chime in
Of course, that's just my opinion -- I could certainly be wrong (check out my CAPS record to see how I'm doing there). So, don't take my word for it. Get Quidel to open up and say "Ahh," run a few tests of your own, then drop by CAPS and give us your prognosis. Will this patient live?