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.

It's been awhile, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:

Companies selected from the list of stocks hitting new intraday 52-week lows as reported on finviz.com. Recent price and 52-week high provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

The week in weak stocks
After coasting along quite merrily for most of the week, stock markets slipped over the waterfall Friday. The S&P 500 ended the week down 2.5%, the Dow Jones 1.5% -- and every one of the 30 Dow components lost value Friday. And that's the good news.

The bad news is what's happening to the worst dogs of the market. Stocks like the five named up above, each of which crashed to a new 52-week low on Friday. So what went wrong?

In some cases, the answer is obvious. Everyone knows that Amazon.com is eating Best Buy's lunch, for example. (There's even a word for it -- "showrooming.") Similarly, Research In Motion and Nokia are having a very hard time competing with Google and Apple in the smartphone market. Nokia's position got even worse last week when a shareholder class-action lawsuit was filed alleging that Nokia's plan to turn the business around by allying with Microsoft was "fraud."

As for the two South American stocks on this week's list, well, the reason for Arcos Dorados' downfall looks pretty clear-cut. Sales were up strongly, but the tax man took a big bite out of this McDonald's franchisee, and foreign exchange rates didn't help much either. Result: Net profit dropped 28.5%, and the stock fell 16.5%. In contrast, Telecom Argentina reported strong revenues, strong profits, and strong free cash flow. I'll give you three guesses as to which of these five-star stocks I think has the most potential.... Time's up.

The bull case for Telecom Argentina
CAPS member mcintyresa introduces us to Telecom Argentina as the company offering "leading celular operations in Argentina," and with a "very low valuation" to boot.

icymount praises the company's "solid fundamentals" and "no debt." (Actually, Telecom Argentina's balance sheet shows net cash in excess of $600 million.)

dreamjob likes the fact that "FCF and Owner Earnings are growing. ... Revenue and EPS / Earnings are growing very nicely." All in all, dreamjob thinks the stock "looks very cheap right now."

I agree. Priced at just 5.1 times trailing earnings, Telecom Argentina looks value-priced for the 11% long-term growth analysts expect out of it. But actually, even if the company failed to grow at all, this stock would still be worth buying just to capture the 5.9% dividend payout. As dreamjob noted, free cash flow at the company is strong. In fact, while the most recent figures aren't out yet, last year at least, Telecom Argentina actually generated more free cash flow than it reported as net income. (Here's hoping it can keep that up.)

Foolish takeaway
When you get right down to it, based solely on the numbers there's no reason not to want to own Telecom Argentina. The only real reason an investor might be leery of it is the fact that it's located in Argentina (surprise!), where the local president has shown a disturbing propensity for nationalizing companies that strike her fancy.

The good news here is that when asked the question last week, Telecom Argentina CEO Franco Bertone said he personally wasn't expecting any "surprises" from the government, and further stated he hadn't "any indication" that the government might be interested in taking over his company. That's not to say that it couldn't happen, of course -- but at this price, I think the shares are worth the risk. And to put my reputation where my mouth is, that's why I'm recommending a purchase of Telecom Argentina for my CAPS portfolio today.

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