"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."

So goes the thesis of my weekly Fool.com column "Get Ready for the Bounce." Therein, I run the 52-week-lows list compiled by Nasdaq.com through the "wisdom of crowds" meter that we call Motley Fool CAPS. And out the other end comes a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.

But is there a way to cash in on fallen angels who've plummeted even further? Perhaps. If a stock that's fallen for one year straight has headroom, then maybe a stock that's fallen even farther, and longer, has room to soar back even higher -- in which case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with five stocks that just hit their 5-year lows:


Recent Price

CAPS Rating

(5 max):

Noah Education (NYSE:NED)



RAIT Financial Trust  (NYSE:RAS)



Kulicke & Soffa  (NASDAQ:KLIC)



Sprint Nextel  (NYSE:S)



Ford Motor (NYSE:F)



Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.

Left for dead? Or drop-dead gorgeous?
With the exception of Noah Education (which somehow made the cut for MSN's "5-year low" list despite having been public less than a year), each of the stocks listed above has shed between 55% and 75% of its value over the past year alone. Wall Street has left 'em all for dead, but on Main Street, their popularity runs the gamut from loathed (Ford) to loved (Hi again, Noah!) Seeing as we're looking for the company most likely to turn the corner, there's only one firm here that we want to look at today, and that's the newbie of the group.

The bull case for Noah Education

  • One of the great things about CAPS is that with 115,000-plus investors, we're bound to have a few contributors who can offer firsthand experience with the companies they recommend. Case in point: stocksasia1, who introduced us to Noah almost exactly one year ago: "As an international educator who teaches in China every summer, I can assure you that the best education possible is the number one goal for middle and upper-class students. ... [Noah Education] and [New Oriental Education (NYSE:EDU)] both cater to students but with different objectives. [Noah] is targeting the K-12 community while New Oriental, with the exception of its summer camp program, targets mainly college and Senior High (10, 11, and 12) students."
  • KSB47 agrees. Writing in December: "In China, (one-child policy) children are raised to be as successful as possible because they will be responsible for taking financial care of their parent's later in life. There are currently 291 million children between the ages of 5-19, Noah's target audience. Noah is the ONLY interactive educational company to partner with China's Ministry of Education. With over 30,000 course titles, Noah is very well positioned to capitalize on the necessity (not need) for higher learning."

Which is all well and good for growth hounds. The three CAPS members above have laid out a decent argument for why Noah could eventually grow into a Chinese Blackboard (NASDAQ:BBBB).

But for the value seeker, here's the real kicker. According to Demesne, the: "Stock price is less than cash." And while I don't usually trust the numbers on Yahoo! much farther than I can throw the server they're loaded onto, this bit of trivia holds up on closer examination. After checking Noah's SEC filings, I've confirmed that (assuming we trust the company as well) Noah has the equivalent of about $150 million in the bank -- not bad for a stock priced under $120 million.

Foolish takeaway
That fact alone probably qualifies as a fair buy thesis, but here's one more point in Noah's favor that you might want to consider: A company's cash kitty is only as safe as its ability to generate new cash in the form of free cash flow to keep it filled to the brim. Historically, Noah has struggled in that regard (as start-ups are wont to do). But in the fiscal year ending June 2007, Noah turned the corner and cranked out $4.7 million in free cash flow.

Time to chime in
But hey, that's just my opinion. Other Fools can as easily point to Noah's habitual reluctance to provide cash flow information in its financial reports, and call that a red flag. And yes, if Noah has resumed burning cash without telling us, that could erode the margin of safety that its putative cash stash provides.

That's why we want to get as much data on the firm -- and as much feedback from those who may know the company well -- as possible. If you've got an opinion on Noah, click on over to CAPS and toss in your two cents.

On Oct. 7, 2008, Fool Co-Founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

New Oriental Education & Technology Group is a Global Gains selection. Blackboard is a Motley Fool Hidden Gems pick. Sprint Nextel is an Inside Value recommendation.

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. 1301 out of more than 115,000 players. The Fool disclosure policy is drop-dead gorgeous.