"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."

So goes the thesis of my weekly Fool.com column "Get Ready for the Bounce," where I run Nasdaq.com's 52-week-lows list through the "wisdom of crowds" meter we call Motley Fool CAPS. Out the other end comes a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.

But is there a way to cash in on fallen angels who've plummeted even further? Perhaps. If a stock that's fallen for one year straight has headroom, then maybe a stock that's fallen even farther, and longer, has room to soar back even higher. In that case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with five stocks that just hit their five-year lows:

Company

Recent Price

CAPS Rating
(5 stars max.)

Dow Chemical  (NYSE:DOW)

$9.53

****

First Industrial Realty  (NYSE:FR)

$3.62

***

Gannett

$4.19

**

New York Times  (NYSE:NYT)

$4.06

*

InfoSpace  (NASDAQ:INSP)

$6.44

*

Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.

Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 38% and 88% of its value over the past year alone, and currently sits at or near its five-year low. Wall Street's left 'em for dead, and to be perfectly honest, most Main Street investors aren't too keen on their prospects, either.

Only one company retains their trust -- and to be honest, it's hard to believe we're seeing this stock on the list in the first place. I mean, do investors really believe that after 112 years of surviving everything the global economy could throw at it, Dow Chemical is just going to go "poof!" at the first sign of recession? Fools couldn't disagree more. With the stock down 75% from its recent high, they're willing to bet that this company's a survivor. Here's why:

The bull case for Dow Chemical
Relic666 echoed my own thoughts just last week: "Dow Chemical has been around for a long time and will be around even longer. They have their hands in a little bit of everything that is consumer oriented, so they should have a nice comeback within the next year or so."

Likewise, abgreenberg argues that: 

Dow is a no lose option...If they pay their current dividend, the price will go up. If the economy improves a little, the price will go up. If they are bought and disbanded, the price will go up. If they go into bankruptcy, it will be reorganization, not liquidation...Dow is SO far below it's real value that I can't see much downside.

Last but not least, CAPS All-Star investor BSHumphreyII opines:

Dow is certainly more of a value play than a growth play. Growth has been relatively stagnant over the last few years, but their balance sheet and cash position are solid for the industry, so it doesn't look like this old stalwart is going anywhere. Normally I'd be leery of an 11% yield, but management has given assurances that it won't be cut, and even if it is, it will probably still be solid.

Ahem. As it turned out, of course, Dow did cut that dividend last week. Hurt by a canceled business deal in Kuwait and a growing penalty for failure to consummate its Rohm & Haas (NYSE:ROH) merger, Dow queued up behind fellow S&P heavyweights Citigroup (NYSE:C) and Bank of America (NYSE:BAC) in the dividend-slashing loser's parade, announcing its first-ever dividend cut last week. So bad news, investors. Dow's not actually going to pay you 11% to own its stock. It'll be more like 6.3% from here on out.

At nearly three times annual profits, Dow's old dividend was lavishing riches on shareholders in the short-term, but destroying the company's cash reserves in the process. By cutting the dividend to $0.60-a-year, Dow can now afford to keep paying it.

Valuation
But this story gets even better, Fools. According to its annual report, Dow earned $579 million last year, or just barely enough to fund its new annual dividend obligation of $555 million. But that's just the GAAP story. Dow actually generated more than $2.4 billion in free cash flow last year -- nearly four times as much loot as it needs to fund the new dividend level. Once it gets its merger and joint venture issues cleared away, the company should be admirably positioned to begin raising its dividend once again.

With the stock now selling for less than four times free cash flow, analysts positing 7% long-term growth, and every likelihood of an already strong dividend growing in the future, Dow looks to me very much like the "nice comeback" story that Relic666 argues it will become.

Time to chime in
Of course, to quote Dennis Miller: "That's just my opinion. I could be wrong." Maybe the recession will savage Dow's cash flows further. Perhaps management will decide then that it needs to eliminate its dividend entirely. In an economy like this one, anything can happen.

So the real question becomes: What do you think will happen?

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 506 out of more than 125,000 members. The Fool has a disclosure policy.