"'Don't catch a falling knife' ... 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 recurring Fool column "Get Ready for the Bounce," in which we search for future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a potential bouncer?

Nope. Sometimes, stocks fall far in far less time than a year -- and like a superball dropped from the balcony, the harder they fall, the higher they bounce. Today, we'll look at a few equities that have suffered dramatic drops over the past week. With a little help from the 160,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:


How Far From 52-Week High?

Recent Price

CAPS Rating (out of 5)

Natus Medical (Nasdaq: BABY)




Orthovita (Nasdaq: VITA)




Qualcomm (Nasdaq: QCOM)




Gilead Sciences (Nasdaq: GILD)




DryShips (Nasdaq: DRYS)




Companies are selected by screening on finviz.com for abrupt 4% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
Earnings season is upon us, and while many companies have done well so far, not all investors have been lucky enough to own the good 'uns. Up above, you see the casualty list. Shareholders suffered the consequences of a weak revenue forecast at Gilead, and anemic profit predictions at Qualcomm -- both of which pale in significance to the dire situation at DryShips.

The Greek shipper announced last week that it needs to take out $220 million in new loans, and that's only the start of its troubles. As part of the deal, DryShips will be delivering $60 million worth of its stock to lender Deutsche Bank -- which will promptly sell those shares in hopes of buying them back and returning them later on.

Borrowing shares to sell them, in order to buy them back and return them? That sounds like a dictionary-perfect description of a "short sale." And DryShips is giving Deutsche carte blanche to short its shares in exchange for getting the loan. Egads! No wonder investors are so down on the stock!

But the good news is that we also have two five-star raters on today's list: Motley Fool Rule Breakers recommendation Orthovita, and Motley Fool Hidden Gems pick Natus Medical. Of the two, I see much more risk in Orthovita, which warned on Thursday that its revenue will fall short of Street expectations -- setting up the possibility for more pain when the company reports earnings in May.

In contrast, alone among the companies named above, Natus had no bad news whatsoever to report last week. With earnings due out this coming Thursday, it seems to me that Natus offers us our best chance to catch a bounce this week.

The bull case for Natus Medical
CAPS All-Star akenst sees Natus offering: "Great potential for long-term growth, especially as they successfully integrate their most recent acquisition. Lots of cash on hand, too."

Clint35 agrees:

A lot of their products really help people so it doesn't take much convincing for people to buy. This company specificly is a good company … still a small company with a lot of room to grow. Once the price hits $20 institutions will pile in like crazy …

And what might push the company to $20 in the first place? All-Star investor jamespeer had a few thoughts on that score last year. As it turns out, Natus "recently made a very good acquisition of Alpine, world leaders in neurology[;] expecting strong earnings growth from 2010 onwards... "

Buy the numbers
Which is not to say that Natus has been posting shabby numbers prior to this year, either. Sure, the company's serial acquisitions tend to depress reported profit. They also give Natus an artificially high P/E ratio that's twice what you'll find at more mature companies such as Medtronic (NYSE: MDT), and three times the multiple accorded to Johnson & Johnson (NYSE: JNJ).

But by the same token, Natus is growing much faster than its larger peers, and generating cash flows far in excess of what GAAP accounting permits it to report as "profit." Over the past 12 months alone, Natus has generated a whopping $24 million in free cash flow -- nearly triple its 2008 cash haul. With analysts projecting annual five-year earnings growth in the neighborhood of 27%, and the stock selling for barely 18 times free cash flow, I see every chance that BABY will grow into a winner.

Time to chime in
At least, that's my opinion. You're free to disagree. And if you do disagree with me about Natus and its prospects, we've got just the place to state your case. Click over to Motley Fool CAPS now, and tell me why I'm wrong.

Natus Medical is a Motley Fool Hidden Gems selection. Orthovita is a Rule Breakers selection. Johnson & Johnson is an Income Investor recommendation. The Fool owns shares of and has written puts on Medtronic. Motley Fool Options has recommended buying calls on Johnson & Johnson.

Fool contributor Rich Smith does not own shares of any company named above. You can find Rich on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 669out of more than 160,000 members. The Fool has a disclosure policy.