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.

Today, we once again stand beneath Mr. Market's silverware drawer, measuring which knives have fallen the farthest. Then we'll call on CAPS to ask which of these stocks -- if any -- Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "52-Week Lows" list at WSJ.com:

Companies are selected from the "New Highs & Lows" lists published on WSJ.com last week. 52-week high, recent price,and CAPS ratings provided by Motley Fool CAPS.

All good things must come to an end
Ah, well. I suppose it was too good to last. For the time being, at least, the market's perpetual sell-off has gone on Spring Break, and with the market in rebound mode, we're fast running out of screaming bargains. Now that the screaming has stopped, CAPS members are being forced to listen carefully for more "whispered bargains." Happily, we're still finding a few.

Even as market indices turned green last week, a few stocks managed to briefly touch 52-week lows at some point. At today's prices, Fools think four of these stocks are still worth a look: CACI International, Baxter International, Newpark Resources, and Princeton Review. As for me, I'm most impressed with...

The bull case for CACI International 
CAPS member gec543 praised the firm last year for being "a leader in IT services for the Government and many other large companies. This is a great investment for the long run." Alan8301 highlighted the firm early last year for "[acquiring] a lot of smaller, well managed companies and has also been receiving more and more GVT CTR large fund awards." This member likes CACI's ability to earn deals with the government.

Most recently, APCorinthians chimed in in March to praise the firm's "valuation." As a value investor myself, this last pitch interested me most. Unfortunately, all AP had to say on the subject was what I've quoted above -- no details whatsoever on what it was about CACI's valuation that was so attractive. Well, no matter. I think we can figure that out ourselves.

More bullish numbers for CACI International
First and most obviously, there's the P/E. CACI sells for just 12.4 times its trailing earnings, which seems fair relative to analyst's expected 13.1% five-year annual growth at the company. Cash flow is also impressive. CACI has demonstrated remarkably stable cash generation the past few years, and generated $146 million in free cash flow  last year.

Now the bad news. Remember how Alan8301 mentioned that CACI has been buying up smaller companies? Well, the thing about buying companies is... you've got to pay for them. And CACI's run up a boatload of debt in doing so. Its balance sheet now holds more than $530 million in net debt, pushing the enterprise value past $1.6 billion. Fortunately, even with this debt load, the company still sells for an enterprise value-to-free cash flow of only 11 -- and so, is even cheaper when valued on its free cash flow than when valued on its GAAP earnings.

One final thought: Comparing CACI to local government contracting rivals Computer Sciences (NYSE:CSC) and SAIC (NYSE:SAI) recently, I began wondering whether CACI's low price-to-book ratio, subpar operating profitability, and, and relatively quick growth rate might make it a target for takeover. Defense Secretary Gates called for reduced reliance on private contractors, you see. It's possible that firms operating in this space may turn to acquisitions to keep their growth rates up. 

In such a scenario, CACI's small size could make it look easily digestible; its low profitability may entice purchasers who believe they can improve its operations; and its respectable growth rate -- well, that holds obvious attractions, not just for the smaller Computer Sciences and SAIC, but for bigger defense players such as Boeing (NYSE:BA) or Lockheed Martin (NYSE:LMT), for example.

Time to chime in
Should a buyout offer materialize, that would be icing on the cake. But in my view, the valuation already makes CACI looks pretty tasty. Of course, you're welcome to disagree. Click on over to Motley Fool CAPS now, and tell us what you think.