Get Ready for the Bounce

"Don't catch a falling knife." Thus commandeth the old saw (to mix a cutlery metaphor.)

But if people weren't tempted to catch cutlery in the first place, there'd be no need for this little bit of investing wisdom, would there? The idea of buying a former highflier at a discount price certainly has its attractions. The trick, of course, is to increase the odds that when you make your grab, you're catching haft, not blade. That's where we come in.

In The Motley Fool's continuing effort to keep your investing dollars safe, today we once again assume our position beneath Mr. Market's silverware drawer. As the knives plummet, we'll measure who's fallen farthest. Then we'll head over to Motley Fool CAPS and ask which of these stocks Foolish investors think are ready to rebound to new highs -- if any.

With that said, let's meet today's list of contenders, drawn from the latest "52-week lows list" at MSN Money:

Knives and knaves
Before we choose our most-likely bouncer of the week, I think it's worth pointing out a couple of glaringly obvious facts shown on the table above. First, as usual, investor sentiment weighs heavily against the market downtrodden. When a stock is down and just keeps going downer, then -- rightly or wrongly -- investors tend to lose faith and assign it accordingly low "star" ratings. This is reflected in the fact that we've got just one company named above, one that CAPS players rate "above average."

Second, take careful note of the stock prices of this week's unlucky seven. Not a one of them sells for more than $5, meaning that each and every one is what we call a "penny stock." Now, when you think of it, there's no reason in the world why a $50 stock couldn't lose half its value in a year, fall to $25, and wind up on this list. Heck, last week alone, investors stared on in horror as subprime lenders like Novastar (NYSE:NFI) and New Century (NYSE:NEW) lost 28% and 78% of their values, respectively, over the course of just five days of panicked selling.

Theory aside though, it's instructive to note that in the real world, the stocks most likely to fall into 52-week-low territory appear to be those that are already trading pretty darn close to penny stock status. Just a word to the Foolish.

Ready to bounce?
With that said, on to our potential up-and-comer. Frequent Foolish readers will probably recognize the name Napco Security, as my Foolish colleague Brian Pacampara featured the stock a couple months ago in 5 More High-Star, Low-Priced Stocks. Back in January, Brian called Napco "an attractive risk/reward proposition" that had been pummeled after an earnings miss, despite its CEO predicting a "dramatic" improvement in sales on the back of new product introductions.

The ensuing two months haven't seen that thesis borne out or been kind to the stock, which has shed 15% of its already-diminished value in the interim. But does that mean all hope is lost? CAPS players seem to group into two theories for why this company can still reward investors:

• CAPS all-star FoolASC poetically sums up the problem in three words: "management" and "knuckle heads." bjpar123 agrees, musing that "If this mgmt were gone the company would be sold for $10 plus."
• But what if management says, "Heck, no, we won't go!"? In that case, you might still take comfort in the words of WyattKaldenberg, who thinks the entire problem at Napco is, "This is a great company hurt by the housing slow down." Observing that "Lennar's Jan starts are very good and KBH, S.P., and Horton, while not as good as Len are better than they have been," WyattKaldenberg believes "this is a good buy for the long haul."

Time to chime in
For my part, I look at what happened to Novastar and New Century last week, and I think the housing industry turnaround looks to be quite a ways off, but that's just me -- what do you think?

Will Napco continue to follow the downward trend of its fellow now-penny-stocks? Or can it turn the corner by ditching its managers, or riding the wave of a doubt-defying housing industry turnaround? Whichever way you lean on the issue, consider Motley Fool CAPS your own personal soapbox. Speak up -- we're listening.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

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 46 out of more than 24,000 raters. The Fool has a disclosure policy.