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  
With the Dow Jones Industrial Average finally re-crossing the 13,000 level Friday, you might be surprised to learn that not all stocks are doing well. In fact, nearly 100 of Wall Street's best and brightest -- including all five of the stocks named up above -- hit new 52-week lows last week. But why?

In a word: earnings. 'Tis the season for earnings reports, and while some companies are doing fine, a lot more aren't. Beginning at the bottom of the list, genetic testing company Sequenom reported losing $30 million despite growing its revenues 37% in the second quarter. This was worse than expected, and Sequenom shares fell 12% in consequence.

Elsewhere in tech, Acme Packet lost 7% of its market cap despite meeting revised (downward) earnings guidance. The problem here: Acme cut guidance even more in its earnings report, warning that it could end up earning as little as $0.43 this year -- less than half its original forecast.

Now, it wasn't all bad news. Deckers, for example, hit a 52-week low last week, too -- but recovered quickly after proving the pessimists wrong Friday, and beating on both earnings and revenues. Meanwhile, Chimera Investment, after touching a new low on Thursday, bounced back Friday (albeit on no news whatsoever -- so make of that one what you will.)

The bull case for Infinera
Investors seem to be reacting to these results, mostly, with middle-of-the-road, three-star ratings -- the statistical equivalent of a shrug and a muttered, "What are you going to you do?" But in one case, investors are getting downright excited by the recent plunge in stock price of one of these stocks: five-star optical networking specialist Infinera. Why?

CAPS member DSmod offers one theory, arguing that, "This stock seems range bound between about 6.10-8.50. I like it right now--at the bottom of the range." (Actually, after last week's drop, the stock is even selling for a discount to this "range").

Teacherman1 expects Infinera to return to form shortly, predicting that the company's technology shows "good potential over the long term, and this is a good price to start for a more patient hold."

And he's not the only one. All-Star investor oryjobe notes that:

Management is upbeat about the company’s next-generation offering, the 500G PIC-based DTN-X platform. The product is already starting to make inroads, generating interest among potential and existing customers. Management reiterated that the platform would be ready to ship by the close of the current quarter and ought to start generating revenues in the 2nd half of 2012.

And of course, now that Q2 results are out of the way, we're smack dab in the middle of that second half oryjobe is talking about -- meaning Infinera's numbers could start improving soon. Maybe not this quarter, but according to JPMorgan Chase, the new 100G optical upgrade cycle is set to begin "during the last quarter of this year" and accelerate through 2013.

Foolish final thought
Now before you go getting too excited, it's worth pointing out a few caveats. Infinera is still burning massive amounts of cash. It's still unprofitable, and in contrast to what we were hearing just a few months ago, it's now no longer expected to turn a profit next year. (Although it could get close.)

Personally, I'm still in "trust but verify" mode on this stock, and I still consider it still a speculative investment. My advice: Keep an eye on Infinera, but once free cash flow begins to tick upward, get ready to buy. If and when Infinera turns the corner -- as management, JPMorgan, and our CAPS community expect it to -- this thing could take off like a rocket.

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