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 the farthest. Then we'll head over to Motley Fool CAPS and ask which of these stocks, if any, Foolish investors think are ready to rebound to new highs.

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
Once again, our list proves the converse of the "everybody loves a winner" maxim. When a stock falls on hard times, its popularity evaporates right quick. Thus, today's list is chock-full of companies that CAPS investors rate as likely underperformers, with one exception: the intriguingly monikered handset-design and software-solutions provider China Techfaith.

What hope could Fools possibly see in a firm that's underperformed the S&P 500 by an incredible 72 points over the past 52 weeks? Let's find out.

The bull case for China Techfaith
Most of the All-Star investors -- who, I suspect, are responsible for China Techfaith's receiving a four-star rating -- took a powder on this one. For the most part, I'm afraid their comments amount to little more than references to momentum plays and bald assertions that "it's cheap." Turning instead to our not-yet-All-Star team for commentary, therefore, we find:

• dbbfool63 arguing that because Techfaith has "good relations with top companies like" Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), and Qualcomm (NASDAQ:QCOM), "this tells me they are doing something right and making changes in how they do business."
• Meanwhile, although it's not tracked on CAPS, we learn from CAPS player Thlete that Techfaith has been chosen as a "5-star stock" by Morningstar. That's one star better than it gets on CAPS! (Ah, but does Morningstar have cool-looking player avatars? I think not.)

I have to admit that I'm a bit underwhelmed with the quality of our CAPS write-ups on this one -- and especially with the All-Stars' efforts. For their part, the lower-ranked players make decent attempts at carrying the ball, but even there, the logic seems a little lacking. For example, I don't see why signing a contract with a big-name client reflects a change in how one does business -- or why it's even an improvement. It could just as easily be the case that the client is taking advantage of its weaker counterparty and imposing onerous contract terms on the latter. Matter of fact, when you look at Techfaith's string of three straight money-losing quarters, that scenario seems more likely than not.

Long story short, yes, Techfaith could bounce. It's certainly fallen hard enough, and long enough, that there's reason to suspect the market has overreacted. But I'd urge investors to do a lot more digging into this one before accepting Techfaith's four-star CAPS rating at face value.

Time to chime in
But the purpose of this column isn't to tell you what I think about a company I've barely glanced at. At CAPS, we aim to capture the intelligence of the whole Foolish community -- to work together to beat the Street. So if you know Techfaith well, tell us: What do you think about its prospects?

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 No. 1,838 out of more than 31,000 rated players. Intel is a Motley Fool Inside Value pick. The Fool has a disclosure policy.