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 and recent price provided by Yahoo! Finance. 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 is pulling a few highfliers back into value territory. In recent days we've seen ManTech and Magellan "miss" earnings estimates, while Abbott and DeVry beat 'em. Why are the winners down here with the losers? Probably for the same reason that we see Xenoport (which hasn't even reported yet) here -- because investors aren't optimistic about its prospects.

Incidentally, neither am I. I explained why DeVry looks too pricey a couple weeks ago. I laid out the relative merits of choosing Pfizer (NYSE:PFE) and Merck (NYSE:MRK) over Abbott a few weeks before that. Today, we'll be looking at the other top stock on this list, as we dig into the details of ...

The bull case for ManTech International 
NetscribeTech introduced us to ManTech way back in 2007:

The company develops information technology and technical service solutions for various mission critical national security programs, which supports the intelligence, justice and homeland security departments of the U.S government. Their solutions are used in telecommunication networks; infrastructure and system integration efforts supporting the U.S armed forces and other U.S security departments spread across the world.

xxxpatriate argued last fall that an investment in ManTech is a bet that "[w]e are going to keep spending a lot of money on war and security. Whoever makes that more efficient is going to be profitable."

So far, our pitches have been pretty general, big picture affairs. But one of the great strengths of Motley Fool CAPS is the fact that, with 130,000 investors (and growing), we're bound to have a few CAPS members who know the companies they write about first-hand, such as 1cegr1llz, who chimed in last summer:

Mantech employees have taught 3 of my military classes and have always performed very well and have been extremely knowledgeable regarding the subject matter. Their 'product' is enhancing the militaries ability to fight. I realize that sounds vague but its only because it has to. They deal with sensitive subjects.

High praise indeed -- for the employees. But what say we get a little more knowledgeable about the stock? Here's what I see at ManTech:

Despite "missing" earnings by a penny last week, ManTech earned $0.68 per share in its fiscal first quarter -- a 19% increase over last year. Operating margin for the last four quarters now stands at 8.4% -- much better than Boeing (NYSE:BA), and almost as good as Northrop Grumman (NYSE:NOC) earns. And the stock carries a P/E of 13.5 -- which seems reasonable, if not exactly cheap, relative to 11.5% projected five-year growth.

The flip side to all this is that cash flows at defense contractors like ManTech can often lag income performance significantly, as the government fumbles for its checkbook. Receivables from yet-to-be-paid invoices shot up last quarter, with the result that ManTech's free cash flow turned negative -- and trailing annual free cash flow dropped to $75.6 million -- significantly behind reported net income of $94.9 million.

Thus, what appears to be a close-to-fairly-priced equity at first glance is revealed to be a bit on the expensive side upon further examination. 17 times free cash flow? Seems a bit steep for a defense contractor. Personally, I'd pass on this one. I just don't see the bounce-a-bility.

Time to chime in
Of course, that's just my opinion -- I could be proven wrong, and if you're buying ManTech today, you could quite well be right to do so. Here's your chance to tell the world why you think ManTech can manifest its destiny. Click on over to Motley Fool CAPS now and sound off.

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