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 certainly has its attractions, 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 for a rebound. Let's meet today's list of contenders, drawn from the latest "52-Week Lows" list at WSJ.com:

Companies selected from "New Lows" list published on WSJ.com on the Saturday following close of trading last week. 52-week high, recent price, and 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.

While Fools appear less than enthused over most of the stocks making this week's list, one company stands head and shoulders above the rest as a candidate for further research: Marvel Entertainment. Motley Fool Stock Advisor members will recognize the name as one of our longest-running recommendations. Marvel's also one of our best performers, returning 585% for our subscribers since the original July 2002 recommendation, second only to Quality Systems' (NASDAQ:QSII) 796% return.

But for those who don't yet know Marvel, an introduction is in order:

The bull case for Marvel Entertainment
CAPS member DargFool believes that: "New movies coming out will equal another surge in populatity (and probably earnings as well). Current price factors in huge discount to future earnings." And FutureMonkey loves the fact that Marvel is: "Much less dependent on advertisment revenue than most media companies. Not reliant on theme park attendence. Lean employee roster relative to revenue." Nor does this investor fear the recession, arguing that: "consumers still love to escape even for 2 hours. As long as the quality of product doesn't suffer from dilution and overexposure, licensing revenue and movie revenue should continue to generate nice piles of cash."

Last but not least, CAPS member MattMcComb concedes: 

I know I'm jumping on a huge bandwagon here, but I think Marvel is a phenomenal company. They're following the [Disney (NYSE:DIS)] approach: develop a lot of appealing intellectual property (comic book characters that have been around for decades and are loved by millions), then develop products that leverage that IP to generate sales. It's a high-margin business and it's worked well for Disney.

Now let's quality-check these assertions. As far as I can tell, the only CAPS member missing something big here is FutureMonkey, who may not have gotten the memo on Marvel's theme park, scheduled to open in Dubai at the end of 2012. That said, FutureMonkey's right on the money in other respects. Lacking a major television network, Marvel avoids the topsy-turvy advertising market that gives executives at Disney, CBS (NYSE:CBS), and General Electric (NYSE:GE) fits.

Similarly, MattMcComb is right on the money -- literally -- when praising Marvel's high margins. Last year, this company recorded net profits of $0.30 out of every revenue dollar coming through its doors, and operating profits of $0.50. Not even "asset-lite" software magnates like Google (NASDAQ:GOOG) or Microsoft (NASDAQ:MSFT) can make that boast. What's more, Marvel's remarkably consistent in its profitability. Operating margins have averaged 45% for six years running.

Free cash flow at the company is quite a bit lumpier, but the firm generated $179 million of it last year. With most analysts agreeing Marvel will probably grow at nearly 16% per year over the next half-decade, the firm's resulting price-to-free cash flow ratio of 10 and its price-to-earnings ratio of nine look like a Marvelo..., er, that is, an amazing bargain.

Time to chime in
Of course, that's just my opinion. I could be wrong, and more importantly, I know I'm biased -- because I own Marvel shares. So rather than just take my word for it, how about you click on over to Motley Fool CAPS and tell us what you think about Marvel.

At The Motley Fool, we welcome all opinions, from all comers.