"'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, hoping to find 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 week. 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)

Infinera (NASDAQ:INFN)




Allegheny Technologies  (NYSE:ATI)




Riverbed Technology (NASDAQ:RVBD)




Sanderson Farms 




Moody's (NYSE:MCO)




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

Five super falls -- one superball
Last week was a tough one for these five firms. Wall Street kneecapped Sanderson Farms early, after BMO cited weak chicken demand and downgraded the stock. Allegheny soon followed Sanderson down when it reported weak earnings and disappointing guidance. Riverbed and Infinera took their lumps for similar reasons. (Toss in Juniper Networks (NASDAQ:JNPR), and it was a bad day all around for telecom equipment makers. We'll see if Cisco (NASDAQ:CSCO) fares better when it reports next week.)

Of the five, I'd say Moody's suffered the worst damage, though, and not just to its stock price. Warren Buffett has famously quipped: "In the short term, the market is a popularity contest; in the long term, it is a weighing machine." And to my mind, the real damage at Moody's is that Mr. Buffett himself is lightening up on the debt-rater, with key Moody's stakeholder Berkshire Hathaway (NYSE:BRK-B) unloading 8 million shares last week.

So much for the damage report. Let's now move on to the fun part: Which of these five stocks do CAPS members think has the best chance of bouncing right back? Here goes with ...

The bull case for Infinera Corp.
Writing back in February, CAPS member Northville expressed what I suspect is a common sentiment among Infinera fans: "I don't understand the technology that allows them to do it, but I do know that INFN is on the cutting edge of the most recent optical network communications and has a large technology lead over it's competitors, as evidenced by it winning more and more network contracts. Couple this with a strong balance sheet, which includes a lot of cash and no debt and what we have here is a small-cap that is going to be volitile, but headed way up."

CAPS All-Star screach agrees that the: "Product sells itself, rapidly growing revenue stream, margins will accellerate over time." Fellow All-Star Babachrono gives us even more insight into the business model:

A key point ... is to realize that they take a profit hit when they add a new customer, the large amount of common equipment to go into a new customer is at a very low margin, plus discounts lower it even further. However, as the company expands, all they have to do is plug in modules, and these modules are at a very high margin. The new common equpiment is developed being easy to add on to, just plug a module into the open slot and push the power button. So with all the new customers, EPS will drop, but as they begin expanding and adding the modules, EPS will climb with the higher margins. Short-term this company will take a hit, buy in here, if it falls back up the truck, over the long term this company has a genuis business model and is only going up.

Which could well explain why we saw Infinera lose money last quarter even as it signed up four new customers. It could also explain another bit of trivia that caught Babachrono's eye -- the fact that there were "Large amounts of insider buying in Feb and Mar of this year."

Mind you, a review of the insider trading patterns in question reveals that much of this "buying" was of the "exercise an option, cash it out, and run" variety. Still, there's at least one director at Infinera who's been buying heavily on the open market, and holding onto the shares -- at prices not much lower than what we're seeing today.

Foolish takeaway
Burning cash, with no profits this year, and none expected next year either ... Infinera is hardly the kind of company that I'd ordinarily invest in.

That said, the reputation of the investors singing its praises is unassailable -- and if Babchrono is right, then Infinera's business model suggests there could be much more to this firm's profits than what meets GAAP's eye. Personally, I'm intrigued enough to keep a close watch on this stock going forward. But what about you? Do you think it's bound to bounce back?

Click on over to Motley Fool CAPS, and let us know.