"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:


52-Week High

Recent Price

CAPS Rating
(out of 5)

Navigators Group  (NASDAQ:NAVG)




Neutral Tandem (NASDAQ:TNDM)




Energy Conversion  (NASDAQ:ENER)




Tetra Tech 








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

Knock, knock
Who's there? If you ask most CAPS members, it's Opportunity with a capital "O." With the notable exception of Theravance -- shellacked Friday, after the FDA criticized its drug Vibativ for use on skin infections -- Fools think the hard times these stocks have fallen upon are only temporary. They're bound to bounce back, and when they do, fearless Fools today are poised to reap the rewards tomorrow.

Who will bounce highest? Our 145,000 (and growing) lay equity analysts think two of these companies have real five-star potential. Motley Fool Hidden Gems subscribers will already be familiar with Neutral Tandem. But what about our other "most likely to succeed" stock? That's the one we'll be looking at today, as we attempt to triangulate the ...

The bull case for Navigators Group
If you've never heard of Navigators, don't be embarrassed. Fact is, most of the folks on CAPS clean forgot about its existence, too. There hasn't been a single pitch written about this company in more than two years (meaning if you write something now, your words are pretty much guaranteed to rank among the "Top NAVG Bull/Bear Pitches".) That said, a lot of what was said about Navigators way back in 2007 remains true today. For instance ...

CAPS member Nanospeed1 liked the fact that Navigators "[m]akes money" and called it a "Great insurance holding company." Trailing earnings of $67 million shows that this much, at least, has not changed. Patrick6k pointed out that: "the Big Cahounas own a little over 1/5th of the company..." Which is also true today; insiders own more than 21% of the company's shares. And All-Star CAPS member LattePup gave a shout out to Navigators' "[m]argins, [free cash flow], growth; PEG."

The more things change ...
Fast-forward a few years, and Navigators still boasts a 9.2% profit margin, nearly $128 million in trailing free cash flow, and a PEG ratio of less than 1.0. So insofar as these comments go, the bull thesis on Navigators does appear to have some horns.

Of course, while all these numbers look good, the one statistic you're supposed to focus on when evaluating insurance companies is the "combined ratio." That's the percentage of the premiums an insurer collects that it pays out in claims and expenses (before counting its profit from investing those premiums). So let's take a quick look at how Navigators' number stacks up against a few other "name" property and casualty insurers:


GAAP Combined Ratio (Fiscal 2008)

Travelers (NYSE:TRV)


Berkshire Hathaway (NYSE:BRK-B)




Markel (NYSE:MKL)




So here we see Navigators placing squarely in the middle of the pack -- better than AIG (but then again, who isn't?). Even better than Fool fave Markel -- and just a skosh less efficient with its cash management than the legendary Warren Buffett's investment vehicle.

Time to chime in
Now, admittedly I'm no great insurance expert. But when you take some pretty strong profits, even better free cash flow, and a respectable growth -- and combine all that with a combined ratio that rivals that of the Oracle of Omaha, well, I'd say Navigators is holding a pretty hot hand here. Strong enough that I'd gamble this one can bounce back from its lows?

Why, yes. As a matter of fact, I bet it will.

(Of course, you are free to disagree. If you believe that Navigators is headed down the wrong track, here's your chance to warn the rest of us away from it. Click on over to Motley Fool CAPS now, and sound off on Navigators International.

Motley Fool CAPS : It's fun, it's free, and it just might make you famous.

Berkshire Hathaway and Markel are Motley Fool Inside Value selections. Berkshire Hathaway is also a Stock Advisor pick. The Fool owns shares of Berkshire, Markel, and Neutral Tandem.

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. 635 out of more than 145,000 members. The Fool has a disclosure policy.