"Don't catch a falling knife," sayeth the sage. The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade.

For the second time today, we're upending Mr. Market's kitchen drawers and watching the knives tumble. We've already sifted through the silverware on the NYSE. Now it's time to take a stab (pardon the pun) at bargain hunting on the Naz. As always, our guides in this endeavor are twain -- we start with the latest "New 52-Week Lows" list at WSJ.com, then crunch the numbers on investor sentiment at Motley Fool CAPS:


52-Week High

Recent Price

CAPS Rating

(out of 5):

National Instruments  (NASDAQ:NATI)




Evergreen Solar  (NASDAQ:ESLR)




Microsoft (NASDAQ:MSFT)








Wynn Resorts  (NASDAQ:WYNN)




Companies are selected from the "New 52-Week Lows" list published on WSJ.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.

Knives and knaves
By close of trading Friday, no fewer than 333 stocks trading on the NYSE hit bottom. Over at the Nasdaq, the news was just as bad -- 290 listings landed with dull thuds at their 52-week lows.

No two ways about it, folks: Things are tough all over. But 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.

Here at The Motley Fool, we're already making like Angelina Jolie, and have bundled three of these babies into our various portfolios. Both Microsoft and eBay have found themselves a home in the Motley Fool Inside Value portfolio of deep value recommendations. A third stock, National Instruments, is both a Motley Fool Stock Advisor recommendation ... and the top-ranked stock on today's list. Let's find out why as we examine:

The bull case for National Instruments 

  • NetscribeTech introduced us to National Instruments back in early 2007, as a maker of: "instrumentation and automation software and hardware for general commercial, industrial and scientific applications. ... [T]he company is in the process of rolling out new products in line with market requirements, to counter increasing competition. With enhanced focus on high-growth segments and industrial and machine control, it is also expanding its distribution channel to cater to its growing customer base. ... [I]ts diversified base of 25,000 customers softens any adverse outcome relating to any particular industry." (National Instruments gear can be found as close to home as Boeing (NYSE:BA) and M.I.T., and as far abroad as Sony and Brazilian oil giant Petroleo Brasileiro  (NYSE:PBR).)
  • CAPS All-Star Doughboy33 looked at National Instruments early last year and declared the company "a great business quantitatively. Huge margins at >70% gross, 14% operating, great returns on capital, great long term growth track record."
  • One of the great things about CAPS is that, with 125,000 investors and counting, we're bound to have a few contributors who can offer firsthand experience with the companies they rate. So it's on that note that we'll let Fireduck have the last word today (noting that he originally voiced it in August '07): "As a worker in the IT industry, it is rare to see a company doing things right. Their software development environment (LabView) allows developers to interface with a wide range or physical sensors and components. The software is being used a great deal in developmental robotics and autonomous systems."

High praise indeed -- but does it hold up under closer examination? Reviewing National Instruments' latest financials, we find the company continuing to hold the above-70% gross margins that won it praise from Doughboy33 last year. However, the firm appears to be having trouble keeping its costs under control lately, and this has hurt operating profitability. As R&D costs and -- more worrisome -- selling, general, and administrative spending outran sales growth last year, National Instruments saw its operating profit margin fall more than 200 basis points, dropping to less than 12%.

Even so, sales grew at a respectable 11% clip, and if you believe Wall Street, profits will grow even faster going forward; consensus projections say we could see growth as fast as 17% per year over the next half-decade. To me, therefore, the bull thesis on this stock looks pretty obvious.

What's more, this firm generates significantly better free cash flow than it is permitted to report as "profit" under the GAAP rules. Valued on enterprise value to free cash flow, the firm's selling for a multiple of more like 11 -- even cheaper than a strict P/E ratio would indicate, thanks to the company's $235 million in cash and investments. Put it all together and yes, Fools, I believe we've found ourselves a bona fide bouncer today.

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

Motley Fool CAPS : It's fun, it's free, and it just might make you famous.

Microsoft is a Motley Fool Inside Value recommendation, while National Instruments is a Motley Fool Stock Advisor recommendation. Both Inside Value and Stock Advisor have picked eBay. Petroleo Brasileiro is a Motley Fool Income Investor pick.

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. 583 out of more than 125,000 members. The Fool has a disclosure policy.