If a company's stock is trading at rock-bottom prices, there's usually a valid reason why it's tanking. That said, it's important to remember that the market has a tendency to panic in a sell-off, pushing share prices well below their true value. Which can present some potentially golden opportunities for savvy investors -- as long as they're not afraid to take on the risk.

Here's the thing about beaten-down stocks -- odds are, most of the bad news has already been priced in to them. Meaning one more negative item probably isn't going to have much of an impact -- but an unexpected bit of good news could send the stock soaring.

Then again, not every bargain-basement stock is necessarily a bargain. So how can you limit your downside risk?

See how much cash a company generates. A relatively high amount ensures that the company will at least be able to pay its operating expenses over the near term, and that diminishes some of the danger around it ...

For each company mentioned below, we'll express the levered free cash flow as a percentage of market cap. Levered Free Cash Flow (LFCF) measures the amount of cash left over after all interesting payments have been made. The higher the value, the more cash the company has.

Here's a list of oversold stocks with enough of a cash cushion to keep up with operating costs. Considering the possibility that most of the bad news is already priced into these names, are these stocks being underestimated? (Click here to access free, interactive tools to analyze these ideas.)

1. Brookfield Homes Corp (NYSE: BHS): The company is a land developer and homebuilder, primarily focused on markets in Northern California, Los Angeles, San Diego, and Washington, D.C. The stock has seen a sharp pullback after several law firms announced investigations into the company's recent merger of Brookfield Properties Corporation with Brookfield Residential Properties.

Key Stats: Trailing-12-month levered free cash flow at $79.33M, which represents about 23.2% of the company's total market cap of $341.88M.

2. MedAssets (Nasdaq: MDAS): The company provides technology-enabled products and services for hospitals and health systems. The company recently announced that its FY 2011 earnings will be well below analyst estimates, and the share price has dropped sharply since then.

Key Stats: Trailing-12-month levered free cash flow at $187.64M, which represents about 21.09% of the company's total market cap of $889.92M.

3. Scholastic Corporation (Nasdaq: SCHL): Scholastic is a global children’s publishing, education and media company. The company's shares have been dumped after reporting poor Q3 earnings results. Scholastic also cut its fiscal-year guidance and now expects a per-share profit from continuing operations of $1.25 to $1.40 on $1.9 billion in revenue, down from its December targets of $1.80 to $2.05 a share on revenue of $1.9 billion to $1.95 billion.

Key Stats: Trailing-12-month levered free cash flow at $163.75M, which represents about 19.75% of the company's total market cap of $829.08M.

4. PAETEC Holding Corp (Nasdaq: PAET): The company provides business customers with a package of integrated communications services. Back in November, the company reaffirmed its earnings guidance for FY 2010.

Key Stats: Trailing-12-month levered free cash flow at $73.09M, which represents about 15.44% of the company's total market cap of $473.29M.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.