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 Nasdaq.com:

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, and with their stocks down anywhere from 34% to 71% from their 52-week highs, the stocks on today's list sure are getting panned -- with two exceptions. Despite (or perhaps because of) their plummeting stock prices, perfume purveyor Inter Parfums and piracy preventer Macrovision both retain above-average ratings on CAPS.

Ordinarily, I'd head straight to top-rated Inter Parfums for today's "profile in cheapness" -- but looking over the valuation, I just don't see a lot to like in that one. Seems to me that four-starred Macrovision offers the more interesting value proposition here, so this week we're going to check out ...

The bull case for Macrovision
I have to admit, I've had Macrovision on my radar for quite a while now. In fact, I've watched this one ever since I noticed that Macrovision owned the "InstallShield" icon that popped up whenever I installed a program on my computer, and provided the anti-piracy software for most every DVD I've ever watched. Although Macrovision faces stiff competition from well-financed rivals such as Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), it seems I'm not the only one rooting for the little guy in this industry:

• silentrumble argues, "As long as content providers want to get compensated for making their products available, rights management will be an on-going concern. MVSN is at the forefront of solutions for all of the various digital distribution routes. As these channels develop, MVSN's profits will increase."
• TomTechnical agrees, calling Macrovision "the leader in copy protection and digital rights managment. New management, better visibility, strong results from the DRM side, and improving picture on the media side bode well."

But if Macrovision is such a dominant force in the lucrative copy-protection industry, why did its stock crater on Friday? Actually, the one has little to do with the other. Macrovision got killed Friday not because of problems with its copy-protection business, but rather because of the new business line it's getting into: organizing digital content for easier access (and marketing). Macrovision made a big move into this space with its agreement to purchase All Media Guide Holdings in November. It took another step away from its roots last week, when it bid $2.8 billion to acquire Gemstar-TV Guide.

Personally, I have to say I'm as dubious as Mr. Market on whether Macrovision is making the right move here. Pre-Friday-crash, Macrovision carried a $1.4 billion market cap, against $78 million in trailing free cash flow. In contrast, Gemstar sold for nearly twice as much ($2.6 billion), while earning less than half Macrovision's cash profits ($32 million). Seems to me that Macrovision is trying to buy a less profitable business for a premium. That said, the 21% haircut Macrovision took last week takes some of the risk out of the transaction for new buyers. It wouldn't surprise me to see the stock bounce back if management can convince investors there's a method to its madness.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Macrovision -- or even what other CAPS players are saying. We also want to hear your thoughts. Do you see synergies in Macrovision's new business model? Or does the price it's paying look too rich to you? Click on over to Motley Fool CAPS and tell us what you think.