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:

Company 

52-Week High

Recent Price

CAPS Rating (out of 5)

Exxon Mobil (NYSE: XOM  )

$76.54

$56.57

****

Dynegy (NYSE: DYN  )

$13.35

$3.62

****

Nucor (NYSE: NUE  )

$51.08

$37.32

****

Nasdaq OMX (Nasdaq: NDAQ  )

$23.24

$17.30

****

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

Four of a kind
If you had money invested in the stock market last week, chances are you have less of it today. But on the flip side, money you didn't have invested in the market last week can now buy you more stocks than it could have just a few days ago. So is it time to go stock-shopping?

Fools appear to think it is time to buy. Up above, you see four stocks that recently hit 52-week lows. Each of these companies bears an above-average CAPS rating of four stars, suggesting that investors on balance believe each of these companies is a "good bet" to outperform the market going forward. As for me, though, I'm going to break from the pack. When I look at this list, I see one stock that stands head-and-shoulders above the rest. Maybe not a "sure thing," but the closest thing to it I've seen in a while. It's name?

Exxon Mobil
Why do Fools love Exxon Mobil? CAPS member ItsOnlyFair counts the ways:

Hard assets, cash on hand, and great dividends. What else could you ask for? How about the world's largest integrated oil and gas company with the addition of XTO.

CAPS All-Star redfox18 couldn't agree more: "Long time bet. Natural gas only makes this better."

But you may have to act quick to capitalize on this opportunity. Fellow All-Star HappyJen100 notes that "bad press from the oil spill is hurting not only [BP (NYSE: BP  ) ] but the entire industry. Exxon just won't have to be the ones paying out for the clean up and all the lawsuits." (Not this time, at least.) But BP's bad press won't last forever, and Exxon won't be "tarred" with its troubles forever either.

Battle of the bargains
So now you've heard why our CAPS members think Exxon's a buy. But why do I prefer it over the other three names on this week's list? Let's dispose of the easy question first. Profitless, burning cash, and laden with debt, Dynegy looks to me like a better candidate for bankruptcy than for outperformance.

As for Nucor and Nasdaq, I'll be honest with you, folks. I actually agree with the CAPS consensus that these stocks will outperform the market. Nucor's strong free cash flows and modest debt load tell me that one's a winner over the long-term. Nasdaq, while carrying a fair amount of debt, has precious little in the way of capital-expenditure requirements to diminish its own strong free cash flow. Plus, both companies are expected to grow at respectable, double-digit clips over the next five years. In short, I've got nothing bad to say about either company.

But I still think Exxon's the best bargain of the bunch, and here's why.

Black-gold assets, green-money profits
Selling for just 13 times trailing earnings, and only 8.1 times next year's projected profits, but expected to grow its profits at a near-16% annual clip over the next five years, Exxon offers a prima facie bargain for value investors. Toss in a beefy 3.1% dividend yield, and the company appears to satisfy value investing guru John Neff's "total return ratio" in every respect.

That, at least, is the way I look at Exxon. Another way to consider the company, though, is as an asset play. From this perspective, the company's 23 billion-barrel reserve of oil equivalent equates to about $1.7 trillion worth of hydrocarbon reserves at today's spot prices, selling for a mere $260 billion (Exxon's current enterprise value). Basically, you're looking at a chance to buy Exxon's in-the-ground oil at 15% of its in-the-barrel value -- a value currently depressed by the global recession, but one that won't stay depressed forever.

For comparison, both Anadarko Petroleum (NYSE: APC  ) and ConocoPhillips (NYSE: COP  ) sell for about an 83% and 84% discount to asset value. (BP, of course, sells for a steeper discount than either of these companies, and is cheaper than Exxon Mobil, too -- but for good reason.) Meanwhile, all three of these oil majors lack Exxon Mobil's sterling balance sheet, on which cash exceeds debt levels by a clean $4 billion.

Time to chime in
And there you have it. You know why most Fools think Exxon Mobil will outperform. You know why I think it will outperform even other undervalued companies, in the oil sector and elsewhere. Now it's your turn -- what do you think about Exxon Mobil? Click. Vent. Vote.

Fool contributor Rich Smith owns no shares of any company named above. You can find him on CAPS, pontificating under the handle TMFDitty, where he's ranked No. 469 out of more than 165,000 members. Nasdaq OMX Group is a Motley Fool Inside Value selection. Nucor is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended writing covered calls on Nasdaq OMX Group. The Fool has a disclosure policy.


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