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 Friday last week. 52-week high, recent price, and CAPS ratings from Motley Fool CAPS.

Despite their troubles, some of these 52-week low-hitters enjoy the support of Foolish investors. Take shippers Tsakos Energy and General Maritime. The announcement of a sizeable share issuance last week promised to dilute the value of existing Tsakos shares -- but hasn't diluted investor interest in the stock, which still scores four stars on CAPS. Meanwhile, at General Maritime, last week's fourth straight quarterly loss certainly hurt the shares. Yet 125 out of 130 CAPS "All-Stars" polled think the company will bounce back, buoying this stock's four-star rating.

Not so with People's United. This banker ended the week on a low note (its low for the year, in fact) as investors continued to punish its earnings miss earlier in October. Same goes for pharmacist Vical, which tried to boost shareholder confidence with a small deal to make HIV vaccines for the IPPOX Foundation last month. Unfortunately, Vical's been unable to overcome investors' disappointment with September's anemic drug test results. In each case, investors hold faint hope for a comeback.

Avanir may have been the worst of all, if not for a stroke of luck. As the clock wound down for the week, Avanir shareholders saw their shares drop 14%. But after close of trading, the FDA announced its approval of Avanir's Nuedexta drug for treatment of "involuntary emotional expression disorder."

So perhaps perversely, I think this makes two-star-rated Avanir the stock most likely to pop this week.

The bull cash for Avanir Pharmaceuticals
I'm not alone. CAPS member nolamickey predicted earlier this month that "if [Nuedexta is] approved there should be a nice run up. They have made the change the FDA has asked and the STAR trials indicate that approval looks possible."

Looking farther down the road, BioInvestor217 thinks Avanir's "solid fundamentals and very good drug pipeline [gives this stock a] overall very good outlook."

Longer-term, Cosmo21 thinks this is a "potential 9 $stock."

That $9 estimate could be low. With Nuedexta approved, Avanir is undoubtedly worth more than the price at which its stock closed out last week. Pharma analysts say the stock could eventually garner as much as $500 million annually in peak sales -- which would be a very big deal indeed for a company that did just $4 million in revenue over the past 12 months.

After all, big-time pharma concerns like Eli Lilly (NYSE: LLY) and Pfizer (NYSE: PFE) routinely command price ratios of 1.7 to 2.9 times their sales. If all goes well -- if Nuedexta sells as well as Wall Street thinks it can, and investors show enough faith in the company to award it a P/S ratio similar to what the big boys sell for -- we could eventually be looking at a $1.5 billion business here. And with fewer than 100 million shares outstanding, that could translate into as much as $15 a share.

Time to chime in
At least, that's how the math seems to work, to my Foolish eye. But Foolish minds can certainly disagree here. The stock popped 15% in after-hours trading after the FDA news broke on Friday. Is that as good as it gets, or are there more profits in store?

You tell me on Motley Fool CAPS.