Get Ready for the Bounce

"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) The idea of buying a former superstar stock at a discount price has its attractions, but you have to make sure you catch the haft -- not the blade. That's where Motley Fool CAPS comes in.

Today, we once again stand beneath Mr. Market's silverware drawer to measure which knives have fallen the farthest. Then we'll call on CAPS to ask which of these stocks -- if any -- Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "52-Week Lows" list at Nasdaq.com:

Companies are selected from the "NASDAQ 52-Week Low" list published on Nasdaq.com on the Saturday following close of trading last week. Recent price and 52-week high provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Knives and knaves
If there's one good thing about a broad-based market sell-off, it's that you find a lot of terrific companies getting the ol' baby-'n'-bathwater treatment. Tossed out on their rosy little bums as if they were bums of another sort. You know -- just know -- that some of these babies are gonna bounce right back once the suds subside.

Judging from CAPS investors' opinions, airline stocks have become the equity equivalent of "floaters." Drugs, well, we'll always need drugs -- just maybe not at these prices. About the only stock we're willing to pull out of the drink, it appears, is Aqua America.

The bull case for Aqua America

• CAPS All-Star rmpederson11 introduced us to this company back in December as a "long term future play" that "serves 3 +/- million residents in Pennsylvania, Ohio, [and] Illinois." The company also provides "water and wastewater services through operating and maintenance contracts with municipal authorities and other parties close to its operating companies' service territories," our writer continues. "Its customer base is diversified among residential, commercial, fire protection, industrial, other water, wastewater customers and operating contracts and other customers."
• Fellow All-Star ikkyu2 fleshed out the thesis by informing us last year that the company has "been acquiring vigorously and expanding their market ... taking full advantage of the lax credit environment to leverage itself to 110% debt/equity and 0.45 current ratio." Our writer continues: "I also think that the company's been very wise to max out its credit lines and take on all this debt in the last 4 or 5 years, because I don't think there's going to be any cheap credit around for some years to come. That means its competitors (those who would compete to acquire WTR's targets) who may not be so heavily leveraged are caught somewhat flat-footed for the next year or so."
• In comparison, joebug1972, writing (again, last year), is more sanguine about the company's prospects: "As record droughts continue to increase their tools, well managed water utilities will have the freedom to raise prices under the simple supply / demand [principle]. Secondly, as the green movement continues to take foothold, companies with a track record to acquire and integrate new technologies / businesses will be the survivors." Our CAPS player thinks "Aqua America is king of the road at successful acquisition integration."

I think I prefer ikkyu2's more cautious stance on this one. For one thing, regardless of demand, I don't know that a regulated utility will have much freedom to raise its prices. Consumers (read: voters" may have something to say about that. And analysts aren't predicting a lot of profits growth for Aqua -- just 9% per year over the next five years. Now, that may sound pretty good to investors in electricity utilities such as Duke Energy (NYSE:DUK) or American Electric Power (NYSE:AEP) -- but Google this ain't.

On the other hand, Aqua's predicted growth rate does exceed expectations for the water utilities sector in general. If we're looking at a longish recession over the next few years, as I suspect we may be, Aqua could well benefit as dividend-seeking investors begin migrating to utilities -- especially if they prefer some growth in addition to income from their investments. Long story short, so long as you're willing to accept a low-altitude bouncer, this one seems to have some potential.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Aqua America -- or even what other CAPS players are saying. We really want to hear your thoughts. Head on over to Motley Fool CAPS, and tell us what you think.