"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:



52-Week High

Recent Price

CAPS Rating (out of 5)

Allied Irish Banks (NYSE: AIB)




AMAG Pharmaceuticals (Nasdaq: AMAG)




Arena Pharmaceuticals (Nasdaq: ARNA)




Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Friday last week. 52-week high, recent price, and CAPS ratings from Motley Fool CAPS.

The Scarlet Letter sell-off
Whatever the reasons, stocks beginning with the letter A had a particularly tough week. Arena led off a list of diet drugs dissed by the Food and Drug Administration, sparking a 42% sell-off in the stock. AMAG soon followed (albeit for different reasons), along with Anthera Pharmaceuticals (yet another A, for apparently no reason at all).

But the damage wasn't limited to the drug sector. As the cost of insuring Irish debt rose to record levels, and Barclays Capital warned that the mess may be too big for even the government to handle unassisted, investors took out their wrath on the country's biggest bankers, dropping Allied Irish Banks a good 11% on Friday, and slicing 7% off of Bank of Ireland -- which is getting perilously close to a 52-week low itself.

Regardless, investors seem much more optimistic about the prospects for a revival at Allied Irish Banks. Is there reason for hope? We've polled the 170,000 (and growing) army of CAPS investors, and here's what they tell us.

The bull case for Allied Irish Banks
While everyone else is worrying about Ireland's ability to handle its debts, EggplantWizard actually thinks it's a positive that: "the irish government [is] propping this bank up without shareholder value dillution." If Allied Irish should survive the crisis, EggplantWizard thinks there should be opportunity to profit from owning "a good underlying business when you disregard toxic assets."

As yoselk points out, "the bank has a strong position ahed after cleaning it's bad assets and passed the stress test of the regulators." Seems that ought to be worth something.

And CAPS member michael2004 believes that the "very low price to book value makes this an attractive value play to me."

But is that P/B ratio low enough to justify buying a profitless bank? Moreover, a bank located in a foreign land, where you lack firsthand knowledge of the company, don't know what customers think of it; where really, you're flying blind, with only "the numbers" to guide you?

Depends on the numbers
If the stock looks cheap enough, maybe it is worth taking a flyer. So let's see how the Irish banker compares with a few of our Stateside brand-name banks:


Return on Assets*

Return on Equity*

Current Price-to-Tangible Book Value

Allied Irish Banks




Bank of America (NYSE: BAC)




Citigroup (NYSE: C)




JP Morgan Chase (NYSE: JPM)




Wells Fargo (NYSE: WFC)




*Average over the past 10 years. Data courtesy of Capital IQ, a division of Standard & Poor's.

Relative to its U.S. peers, Allied Irish Banks sports returns on assets and equity roughly in the middle of the pack, suggesting the valuation is at least fair. Meanwhile, at today's prices, the company's tangible book value is being valued at almost nothing -- the merest fraction of what investors are paying to own the assets of a JP Morgan or a Wells Fargo.

Time to chime in
So, could Allied Irish Banks "go to zero?" Sure, it could (if the government permits it to). But if Allied Irish Banks survives, and if it should ever be valued along the lines of a JP Morgan or a Wells Fargo, you're looking at hundreds and hundreds of percent of potential upside. To me, this suggests that Allied Irish Banks could be worth a gamble.

But that's just my opinion. What I'd really like to know is what you think Allied Irish Banks' fate will be. Click over to Motley Fool CAPS now and tell us what you think.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he was recently ranked No. 568 out of more than 170,000 members. The Fool has a disclosure policy.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.