"'Don't catch a falling knife' ... 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 runs the thesis of my recurring Fool column "Get Ready for the Bounce," in which we search among the wreckage of Mr. Market's overturned cutlery drawer in hopes of finding future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a potential bouncer?

I say nay. Sometimes, stocks fall far in far less time than a year -- and like a superball dropped from the balcony, the harder they fall, the higher they bounce. Today, we're going to look at a few equities that've suffered dramatic drops over the past month. With a little help from the 135,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:


How Far From 52-Week High?

Recent Price

CAPS Rating
(out of 5):

Tesoro  (NYSE:TSO)




IntercontinentalExchange (NYSE:ICE)








Boeing  (NYSE:BA)




Marriott International  (NYSE:MAR)




Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past month. Recent price data and 52-week high provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
Each of the five companies named above has tumbled by 10% or more over the past month, although most (sorry, Marriott) used last week's surprise rally to pare their losses. The one that Fools believe has the best chances of continuing to run higher, though, is oil refiner Tesoro.

Let's find out why.

The bull case for Tesoro 
Tesoro enjoys significant support among some of CAPS' savviest investors -- our All-Stars. Leading off today's bullish prognoses is JBouchard, ranked in the top 1% of investors we track:

Graham formula gives me a fair value of $39 using current numbers. ...  Even using pessimistic earning per share of $1.00 for this year would yield a fair value of $23, so that's a discount between 45% and 65% to the current price of $12.57. In the meantime, I'll get paid a nice dividend of $0.10 per quarter, for a 3% yield.

Fellow All-Star mrindependent agrees but takes a more philosophical approach to the stock:

Refiners appear to be a very cyclical business. Right now, Tesoro is available for 0.63 times book value. Someday in the not too distant future (when?), crack spreads will increase enough to get investors excited. Then Tesoro's price will increase above its book value and I will sell.

And as HTownTX points out: "Refining margins are currently good (~$16 for RBOB), and there may be a cap on the crude price for a while with 366m bbls in storage [as of May 19, 2009]. Going into the summer distillate costs should rise, further expanding the crack spread." RBOB, by the way, refers to the price Tesoro can get selling reformulated blendstock for oxygenate blending -- "gasoline" to you and me.

So here we find one of our uber-investors making an effort to attach a "fair" value to Tesoro using the Benjamin Graham method, followed by two more who may not be exactly certain what the company's worth, but believe it will be worth a lot more in the future.

How can they be so sure? Well, consider that right now, Tesoro is earning all of a 6.1% gross profit margin on its products -- better than Frontier Oil (NYSE:FTO) has managed, but not quite as great as Valero (NYSE:VLO). It's also a little better than Tesoro did in fiscal 2008, but it's a good 26% under the company's average gross margin of 8.2% earned over the past 15 years.

Assuming that CAPS member mrindependent is right about oil refining being a cyclical industry -- and he is -- it seems likely that at some point in the future, Tesoro will regain its average 8.2% gross margin -- and then shoot right past it -- before sliding down the other side of the cycle once again.

Foolish takeaway
It seems to me, and to a lot of Fools brighter than I, that the savvy move here is to buy Tesoro today in hopes of riding the stock higher when margins revive "tomorrow." While there's no certainty that such a recovery will arrive, history seems to suggest it ... and with the stock selling for a price-to-earnings ratio of 4, with growth predicted to approximate 14% per year over the next half-decade, Tesoro looks priced to move.

But hey, that's just my opinion. Head on over to Motley Fool CAPS, and tell us yours. 

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, pontificating under the handle TMFDitty, where he's ranked No. 648 out of more than 135,000 members. The Fool has a disclosure policy.