5 Superball Stocks

"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) The idea of buying a fallen superstar stock just before it bounces back entices -- but you've got 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, measuring 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 make like a superball and bounce back higher. Let's meet today's list of contenders, drawn from the latest "New Highs and Lows" lists 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. 52-week high and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

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, without a doubt, that some of these babies are gonna bounce right back once the suds subside. 

Secure in this knowledge, CAPS members are taking the never-ending sell-off with some equanimity this week. Three of our five stocks, bouncing around their 52-week lows, still enjoy three-star ratings on CAPS -- suggesting that while others panic, Fools see little reason for worry. (As for a fourth, Hearst-Argyle -- well, how can you get upset by a sell-off when you hardly noticed the stock was there in the first place?)

But today, we want to talk about the fifth stock on this list. Beaten up and beaten down, railroad operator Union Pacific boasts a stock price just half of what it once was. But is Union Pacific a literal trainwreck, or are we a few stops away from profits? Let's see what CAPS members have to say.

The bull case for Union Pacific
smacke01 introduced us to Union Pacific in July as a company that: 

... controls or owns a majority of the rails from the Mississippi River west to the Pacific Ocean," and predicted that "our Amber Waves of Grain need to get to the Port of Los Angeles and packed on a boat for Asia ASAP. The unpredicted food shortage this year has no doubt inspired millions of American farmers to plant more food this year and this large harvest needs to get to a port and shipped overseas. These crops are not going to travel cross country in a gas powered truck, they are going by railroad and a huge percentage is going west to Asia.

Now, you might argue that the recession is a game-changer. That people can't afford food, and so they no longer need to ride the rails. But darksabre disagrees: 

Here's what I see going forward ... our whole model of transportation will be changed as markets become more inward focused. Say bye to Greek shippers. Forget about importing stuff from China at a disproportionate rate. Instead, we're going to start building stuff domestically (via "tariffs" or economic sense) and that will make it a boon for railways (already have infrastructure in place).

Nor is darksabre the only Fool thinking railroads are (still) the future. The ever literate (Latinate?) sandvig posits: "Mater artium necessitas: Necessity is the mother of invention. How else do you get the coal to the power plant?"

Old buy theses die hard, it seems. And knowing that Warren Buffett sits in Union Pacific's corner, it seems safer to bet for a bounce-back than against one. What exactly caught Buffett's interest in the first place? I'm only guessing, of course, but from a quick glance at the numbers, I see a P/E of 10 and 18% projected long-term growth. 

Even if our CAPS pitchers are right, of course, there's always the chance that Buffett's taking the wrong position in the right industry. It wouldn't be the first time. I can't help but notice, for example, that Canadian National Railway (NYSE:CNI) boasts a higher profit margin and lower P/E than Union Pacific, although it's pegged for lower growth. Meanwhile, the venerable CSX (NYSE:CSX) boasts a trifecta of bullish bona fides: better margins, a lower P/E, and a comparable growth rate to Union Pacific's.

Time to chime in
Personally, the fact that all three railways lag in the free cash flow department raises enough doubts in my Foolish mind to keep me from hopping aboard the railways train just now. But that's just me -- you're certainly free to disagree. Do you find our CAPS members' arguments convincing? Tell us what you think.