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 are selected from the "New Highs & Lows" lists published on WSJ.com on Thursday and Friday last week. 52-week high and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Help! I've fallen and I can't get up!
Not all companies hitting 52-week lows are destined to bounce back, of course. By all accounts, General Motors (NYSE:GM) hit a 52-week low last week and, as of this morning, has now tumbled into bankruptcy. While it may eventually emerge a stronger competitor, that'll be cold comfort to shareholders of the company today, who will likely to see their investment wiped out entirely. In the case of Nutraceutical, the company's recent low appears attributable to an order filled below market rates, so the lows might not be as bad as they seem.

And yet, although CAPS members hold out little hope for the revival of most firms on this list, there's one stock they do adore -- and have loved for years: the aforementioned Nutraceutical. Why do Fools turn up their noses at the world's (second) largest automaker, but pile in to the stock of a microcap nutritional supplements maker? That's what we aim to find out as we pop open ...

The bull case for Nutraceutical Corp
Way back in 2006, 8dot spotlighted Nutraceutical as a "cheap and profitable" company with "Strong ROE's and ROA's," and as a potential buyout target. That hasn't happened yet, but it could. Nutraceutical competitors or even a large retailer like Whole Foods (NASDAQ:WFMI) might consider the company a nice bolt-on, perhaps to bolster its profitable private-label brands. A larger rival such as Wyeth (NYSE:WYE) could buy out the company with pocket change if it wanted to expand on its health-minded nutritional supplements, such as Centrum.

captdon222 agreed. Around the same time as 8dot spotted the company, he commended Nutraceutical for its "Solid balance sheet," and noted that the company was "buying back shares." More recently, Beebzer has noticed "insider cluster buys" going on at Nutraceutical -- several officers and directors have made multiple purchases in recent months.

That said, these purchases took place at prices much lower than today's. The question is: Now that the margin of safety has shrunk, should you still imitate the insiders?

Maybe, maybe not. Although at first glance this company looks unprofitable and no real bargain, closer examination shows that the only reason Nutraceutical shows a GAAP loss over the last 12 months is because of a large goodwill writedown last quarter. Meanwhile, its "unprofitability" notwithstanding, Nutraceutical continues to churn out cash for its shareholders. $8.6 million in cash generated over the last 12 months gives Nutraceutical a temptingly low price-to-free cash flow ratio of 12.

On the other hand, that's not quite as cheap as the deal the insiders got. It's also true that investors who bet on Nutraceutical's ability to grow its business way back when, have been sorely disappointed these past few years.

Time to chime in
Personally, when I look at a stock that's performed as badly as Nutraceutical, I prefer to adopt a "show me" stance and wait for proof that management knows how to grow the business before betting on the chance -- but that's just my opinion. What we'd really like to know today is what you think of the company's chances.

If you've got an opinion on Nutraceutical -- or, heck, on any of today's most beaten-down stocks -- then Motley Fool CAPS has a place for you to voice it. Get clicking, and sound off.