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 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 and not blade. That's where we come in.

In The Motley Fool's continuing effort to keep your investing dollars safe, we 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 to Motley Fool CAPS and find out which of these stocks -- if any -- Foolish investors think are ready to rebound to new highs.

Today's list of contenders is drawn from the latest 52 Week Low list at Nasdaq.com:

Which of these things is not like the others?
Once again, there is no lack of decent companies for sale on Wall Street. It's not wall-to-wall four- and five-starred stocks like last week, granted. But when you see well-respected companies like Medtronic hitting 52-week lows alongside decent firms like Walgreen and Hershey, well, opportunistic buyers should be grinning ear to ear.

Call me ungrateful, but I'm going to eschew this cornucopia of riches today, and instead use the list to highlight a flaw in Nasdaq.com's number-crunching. One company on today's 52 Week Low list, you see, isn't anywhere near a 52-week low. On the contrary, Johnson Controls is just a few percentage points off its 52 week high.

By what path did it arrive here? In two steps: First, the stock split 3-for-1 on Oct. 3. Second, Nasdaq.com totally missed that fact. (Word to the Foolish: Don't believe everything you read. Always due your own due diligence.)

Whatever way it arrived on the list, now that we've singled Johnson Controls out, let's continue to examine this maker of everything from car batteries to automotive interiors to building power control systems.

The Bull case for Johnson Controls
Why does Johnson Controls get a five-star rating on CAPS? Because there are some very savvy investors giving it the thumbs-up. Polling our All-Stars alone, we find the following comments on Johnson:

reddingrunner laments, "I'd passed on JCI before, thinking it was too expensive. But the demand for energy conservation will continue to increase rapidly meaning that this industry leader's chart for the next five years should resemble its chart for the past five years. Insider buying, lots of cash, long-term momentum and a short-term dip all spell, as at least one analyst puts it: 'aggressive buy'."

crazykling confides, "I work at JCI as an HVAC Sales Engineer. Their Building Efficiency Division will do VERY well [with] the recent and ongoing commercial real estate Boom. The batteries division is doing very well. Interior automotives are just trying to keep market share, but there are upsides to that as well in that they are moving business overseas to emerging market. They work middle line managers hard here, I see it every day, makes me suspect that upper level management is extremely efficient."

Johnson also holds a wild card in the form of high energy prices, and the interest in fuel efficiency they create.

xgrobel bets "that Li-Ion batteries for hybrid vehicles such as the GM Volt will change the automotive industry. Johnson Controls is well placed to benefit from this. Furthermore, it's well managed, so it's a go."

Sounds good so far. But where this investment thesis runs into trouble is on valuation. As reddingrunner hints above, not too far off its 52-week high, obviously Johnson isn't cheap. The stock trades for 21 times trailing earnings, versus long-term growth that analysts expect will fall short of 14%. The resulting PEG is 1.5.

Worse, as a capital intensive business, Johnson generates much fewer cash profits than it gets to report as profits under GAAP. Over the last 12 months, free cash flow has been a mere $347 million, which may sound like a lot until you realize that this is a $24 billion firm. That works out to a price-to-free cash flow ratio of -- better sit down for this -- 69. Ouch.

Long story short, this appears to be one of those frustratingly common cases: Great company, lousy stock.