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."

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 that 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 further, 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 five-year lows:

Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 40% and 65% 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 are feeling much more sanguine about their chances.

Only two of the five get panned outright on CAPS. Meanwhile, the three stocks sporting average or above-average star ratings have one thing in common: They're from China, a market that's been hit hard in recent months, but one that retains remarkable growth potential. Today, we're going to focus on one of these three -- a stock that 95% of investors polled on CAPS believe will crush the market going forward. Allow me to introduce you to...

The bull case for China GrenTech
China GrenTech is hardly a household name, so an introduction is in order. Based in Shenzen, GrenTech is a manufacturer of "wireless coverage products" -- think repeaters, amplifiers, and related tech widgets used to extend the area in which your cell phone "gets bars." With the rapid growth of cell-phone usage in China, you can see the potential for a maker of such equipment. Now let's find out why CAPS players believe GrenTech will capitalize on that potential.

• According to CAPS All-Star PiotrNielsen (writing back in July of last year), GrenTech is "a company located in a booming market whose appetite for communtication and tech products will only procede to grow as the Chinese population amasses increased wealth."
• Bruedude saw the same potential in October, but is also looking at this one as a potential takeover target: "China is experiencing the information revolution. This company makes the hardware to get those 1 billion people connected to the information network ... I'm thinking this company looks primed for a purchase by someone like Cisco (Nasdaq: CSCO), Juniper (Nasdaq: JNPR), HP (NYSE: HPQ), etc."
• More recently, RodgerRafter observed that GrenTech had a: "Book Value per share = $8.97, as of 3/31/08." Yet it was selling for "about $5.00 on 5/23/08." Additional factors in GrenTech's favor include the fact that: "Revenue growth has been limited in recent quarters because of uncertainty surrounding Chinese telecom restructuring, which will be resolved very soon. [Meanwhile,] major customers (China Mobile and China Unicom) have been switching to a regional bidding model that defers revenue and profit recognition out over time for Grentech ... GRRF has a good business model and is committed to continue R&D spending to increase product offerings while attempting to build an international customer base. They are well positioned in a growing sector in the world's fastest growing economy."

Book value is a tricky metric, because it can be written down at the drop of a hat. If memory serves, even Bruedude's first listed acquirer, Cisco, wrote off $2.2 billion in obsolete inventories in one fell swoop back in 2001. That said, buying $8.97 in tangible book value for a little more than $5 (at today's price) gives you a sizable safety cushion against any bruising writedowns.

Meanwhile, the stock carries a market cap of about $125 million, and earned itself one-tenth that sum in net profit over the last 12 months. The resulting P/E of 10, in a stock that analysts expect to grow at 20% per year over the next half-decade, can't help but attract interest among value hunters.

Time to chime in
You've heard what your fellow investors have to say about GrenTech. You've seen my thoughts, too. Now, we want to hear what you think. Click on over to Motley Fool CAPS and tell us whether GrenTech's five-year slump is at an end.