Drop-Dead Gorgeous Stocks

"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 the thesis of my weekly Fool.com column "Get Ready for the Bounce." Each week, I run the 52-week-lows list compiled by Nasdaq.com through the "wisdom of crowds" meter that we call Motley Fool CAPS, producing 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 farther? Perhaps. If a stock that's fallen for one year straight has room to rise again, perhaps a stock that's fallen even farther, and longer, could soar back even higher. In that 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 five-year lows:

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?
Each of the stocks listed above has shed between 50% and 80% of its value over the past year alone, and currently sits at or near its five-year low. Wall Street has left 'em for dead, but Main Street investors think at least one of these stocks is sufficiently removed from the U.S. economy, and its accompanying danger from high fuel prices, to bounce back.

And you must admit -- if fleeing the looming U.S. recession is your goal, you can't get much farther away than Qiao Xing Mobile Communication. Three guesses at (but no prizes for) guessing where this one is located ...

Um, China?
Give that Fool a cigar. Beijing, to be precise. Qiao Xing is kind of like the Motorola (NYSE:MOT) of China. Or, since it's wildly profitable, the Nokia (NYSE:NOK) of China. But are 20% profit margins the entirety of this investing story? Let's find out.

The bull case for Qiao Xing Mobile Communication
We'll start with the obvious. EricLin writes: "Low PE, high growth. And selling below IPO price of $12." That was true when this pitch was authored last June. At four bucks and change, it's twice as true today.

But this story gets even better. According to aparker385, Qiao Xing has:

... over $7 per share in cash, is trading at an E.V./EBITDA of almost 1! The company is not followed and not loved. Over time, it will be valued appropriately. The patient investor will be rewarded. Growth is still there, and more importantly management is focused on improving profitability.... a no brainer if there is no fraud here and management is smart about capital allocation. They appear to be given their focus on improving margins and creating value.

And of course, no China stock recommendation would be complete without the requisite reference to the nation's 1.3 billion citizens. OHL2011 filled in this blank for us in January: "Everyone wants a cell phone and there are more everyone's in China." Well said, OHL2011.

Now, personally, I don't see that the company really needs to improve when it's already earning 20% profit margins. But if Qiao Xing can do it, more power to 'em. Meanwhile, the investment thesis on this one is quite simple: aparker385 says Qiao Xing has more than $7 cash per share. 

Indeed, according to Capital IQ, the company carries $389 million in cash on its books, versus no long-term debt whatsoever. Even if you subtract out short-term debt, though, net cash still amounts to $254 million -- and the company's market cap is only $245 million.

If you don't see the answer yet, read that paragraph again.

Got it now? Qiao Xing is priced at less than its cash on hand. So even if it were not already earning a 20% profit margin, even if that margin got squeezed at some time in the future, who cares? You buy the cash, and get the business -- good, bad, or indifferent -- for free! Needless to say, I like the value proposition on this one.

Time to chime in
Of course, I'll be the first to admit that I don't know the company well (honestly, if I'd even heard of Qiao Xing before now, I'd probably already own it.) Surely there's a Fool or two out there who knows more about the company than I do -- maybe more than our fellow Fools know. If you're that Fool, now's the time to show off your insight. Click on over to Motley Fool CAPS and tell us why this story is too good to be true.