Drop-Dead Gorgeous Stocks

"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."

So goes the thesis of my weekly Fool.com column "Get Ready for the Bounce." Therein, I run the 52-week-lows list compiled by Nasdaq.com through the "wisdom of crowds" meter that we call Motley Fool CAPS. Out the other end comes a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.

But is there a way to cash in on fallen angels who've plummeted even further? Perhaps. If a stock that's fallen for one year straight has headroom, then maybe a stock that's fallen even farther, and longer, has room to soar back even higher -- in which case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with a trio of stocks that just hit their five-year lows:

Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.

Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 30% and 90% of its value over the past year alone, and currently sits at or near its five-year low. Wall Street has left 'em for dead, and truth be told, Main Street investors aren't too keen on their prospects, either. But is that assessment too harsh?

I mean, Macerich is currently offering a 55% trailing dividend yield. That's good, right? Call me a cynic if you like, but I suspect that yield will go the way of the dandy divvies investors used to bank at General Electric (NYSE:GE) and Capital One (NYSE:COF).

Fools aren't quite as pessimistic about usually profitable insurer United America. However, the firm's anemic single-digit returns on capital recently went from bad to negative, which may explain the middling three-star rating it currently enjoys. In contrast, I'm not certain that investors are giving Carbo Ceramics quite enough credit with its three-star rating. So today, I'm going to highlight …

The bull case for Carbo Ceramics
CAPS All-Star KevinKPU introduced us to Carbo Ceramics back in late '07, calling it

… the high volume producer of lightweight proppant in North America, and has a global presence. What some don't realize is that their business is as dependent on natural gas prices and demand as it is on oil, particularly in the US. ... If the price of natural gas begins to catch up with oil valuations (what is it traditionally a 7:1 ratio?), natural gas drilling and stimulations will increase, as will Carbo's sales.

More recently, CAPS fellow All-Star tenmiles termed Carbo Ceramics a "Debt free, deep value play in the oil patch. Sector is depressed due to poor rig numbers, but steady demand for company's proppant agent provides some relative protection - plants are operating at full capacity per recent conference call."

Observing that Carbo Ceramics "has sold at an average of about 3.6 times book value for the decade and has just dropped below 2 times," fcfroic thinks the stock now looks quite inexpensive, adding: "Historically, it has traded at a premium to the S&P on a forward PE basis; however, currently it sells at a slight discount to the S&P." This CAPS member likes this "steady eddy performer with far less capital intensity and higher, more consistent return on invested capital" than the rest of the industry boasts.

One Fool's opinion
Indeed, while the exact numbers vary from year to year, Carbo Ceramics has scored double-digit ROICs for more than a decade. The firm's proppant business (artificial particles used to hold shale fractures open for the extraction of tasty hydrocarbons) continues to interest big-league customers such as Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB), as evidenced by the firm's continued revenue growth in the teeth of a recession.

And did I mention the valuation? Right now, Carbo Ceramics sells for just less than six times trailing earnings, which compares favorably to analysts' estimates of 12% long-term profit growth at the firm. While the firm's free cash flow doesn't quite measure up to what it reports as net earnings, the enterprise value still looks fairly priced at about an 8.5 times free cash flow. With $150 million in cash and a balance sheet scoured clean of long-term debt, I think you can make a strong argument that this stock is not just fairly priced, but downright cheap.

Time to chime in
But don't just take my word for it. Give the stock a gander yourself, review the financials, and then tell us what you think about Carbo Ceramics. Right now, the Foolish community is evenly split on its chances, and the stock teeters on the brink of a three-star rating. Here's your chance to push it one way or the other.

Click on over to Motley Fool CAPS and cast your vote: Is this one dead as the dinosaurs, or is it drop-dead gorgeous?