Get Ready for the Bounce

"Don't catch a falling knife." Thus commandeth the old saw (to mix a cutlery metaphor).

But if people weren't tempted to catch cutlery in the first place, there'd be no need for this little bit of investing wisdom, would there? The idea of buying a former highflier at a discount price certainly has its attractions. The trick, of course, is to increase the odds that when you make your grab, you're catching haft, not blade. That's where we come in.

In The Motley Fool's continuing effort to keep your investing dollars safe, today we once again assume our position beneath Mr. Market's silverware drawer. As the knives plummet, we'll measure who's fallen farthest. Then we'll head over to Motley Fool CAPS and ask which of these stocks Foolish investors think are ready to rebound to new highs -- if any.

With that said, let's meet today's list of contenders, drawn from the latest "52 Week Low" list at Nasdaq.com:

Knives and knaves
To further extend the already painfully elongated metaphor of this column, people say "everybody loves a winner." After looking over this week's list of Wall Street's least-loved stocks, I think we can create a corollary maxim: "Nobody even notices a loser." Of the seven stocks making the list, more than half haven't attracted interest from enough investors to garner even the 10 CAPS ratings necessary to earn a "star."

Speaking of stars, though, we lucked into one predicted outperformer this week: Motley Fool Rule Breakers recommendation Headwaters, which by dint of lousy stock performance, coupled with high hopes from investors, heads up our unmagnificent seven with a four-star CAPS rating.

Ready to bounce?
For all of its troubles in the past, better than 90% of CAPS investors polled expect Headwaters to outperform the market in the future. Let's find out why.

• fogman24 introduces us to the company, observing that its products are "all connected in some shape or form to coal waste. HW has shown it can survive without the [Section 29 tax credit, subsidies under which have in the past provided the firm with significant revenues], is profitable, and has enough coming through the R&D pipeline to make this stock actually look cheap."
• LoneIguana seconds that emotion: "People are spooked by HW because of the jeopardy in the synthetic fuel market. Without a crystal ball I can't predict that aspect, but the OTHER aspects of HW business are still booming. Recycled building materials will continue to grow - the "bust" in residential housing will have little impact on this sector - and a low single digit PE for an industrial materials company is still solid."
• Sutree thirds the motion, observing: "America does not have much oil but we do have more than just tons of coal, try hundreds of millions. Headwater's makes the use of this environmental [whipping] boy much more palatable and with natural gas and oil prices set to be high for years to come, coal will be an increasingly attractive opportunity. Also, the company doesn't just deal in ordinary concrete, but a high-tech version formulated from coal waste products that is more durable and has three time the expected lifespan of ordinary concrete."

Time to chime in
I have to admit, I agree with much of what our CAPS All-Stars are saying, and I'm intrigued at the single-digit P/E that Headwaters currently sports. That said, the P/E is based on trailing earnings, and with the expiration of the tax credits that LoneIguana and fogman24 mentioned, analysts predict that this firm's profits will plunge nearly 50% next year.

Are the analysts being overly pessimistic? Or do our All-Stars fail to see the train rushing swiftly upon them? Whichever opinion you cleave to, come over to CAPS and tell us about it. (If you like, read over our investment thesis on Headwaters before making your decision. You can get free access to the report when you try Rule Breakers free of charge for one month.)

Oh, and if you happen to know anything -- and I do mean anything -- about the four orphaned stocks on today's list, TechTarget, MediciNova, United Security Bancshares, and Firstbank, please tell us about those, too. The more comments we get, the faster we can rate these companies' chances of bouncing back.

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's currently ranked No. 350 out of nearly 30,000 rated players. The Fool's disclosure policy doesn't catch falling knives, but it's a whiz with flaming batons.