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 furthest. 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 on Thursday and Friday last week. 52-week high, recent price, and CAPS ratings from Motley Fool CAPS.

I've got two pair
Mr. Market, in his inestimable wisdom, offers us a pair of losers and a pair of winners for consideration this week.

On the down side, Research In Motion announced a 41% spike in profit on 24% sales growth last week. Fellow Fool Anders Bylund termed the company a "sinking ship" when compared to the rocketing popularity of iPhone- and Android-based rivals. It seems investors agree with Anders, as they drove the stock down to a new 52-week low. Meanwhile, BP -- problem child of the oil industry -- continued its inexorable slide this week when one of its stumbling, bumbling underwater robots pulled the cork on its oil spill cap, unleashing an extra gusher of bad news. Little wonder that investors remain downbeat on both stocks, despite their apparent cheapness.

But fear not, dear Fool. A lethargic summer stock market has also provided us with a couple of bona fide opportunities to consider this week, in the form of four- and five-star-rated Walgreen and Harsco.

I'm mightily tempted to make Walgreen our featured stock this week. Thanks to a high-profile spat with archrival CVS Caremark (NYSE: CVS) on the one hand, and underwhelming earnings on the other, one of the premier names in the chain-store retail sector can now be had for the low, low price of 13 times earnings -- not bad for a projected 14% grower, with a generous 2% dividend. But to my Foolish eye, even this bargain-bin offering can't match the deal being offered on Harsco shares this week, and I'm not alone in thinking so.

The bull case for Harsco
In 2008, CAPS member LEGMAKER wrote a veritable book on Harsco, so we'll let this member make the introductions: "Harsco is a diversified company that looks to be well suited for the challenging times ahead. ... They are involved in the steel industry which should continue to grow globally on BRIC demand. They also work on railway construction which seems very bullish as the railroads have done well so far ... Their construction and infrastructure is non residential based and also looks good. This balanced portfolio of specialties protects to the downside on a global pullback."

CAPS member reddingrunner calls Harsco a: "Nice solid infrastructure play in a well-managed company."

All-Star investor JPresbrown terms it a: "Solid industrial company with good fundamentals and global presence."

Battle of the bargains
Why do I think Harsco is a better deal than Walgreen? Selling for nearly 19 times earnings, but projected to grow at "only" 15% a year, Harsco at first glance looks like a decent bargain, but not as good as Walgreen. But you've got to dig deeper to see the real value in this stock. Here's what you'll find.

Harsco drastically slashed capital expenditures in response to the economic downturn, with the result that its free cash flow now dwarfs reported GAAP earnings. This being the case, Harsco's 19 P/E doesn't begin to tell the tale of this stock's cheapness.

With $265 million in cash generated over the past 12 months, Harsco sells for less than eight times free cash flow, a multiple that rises if you include the firm's net debt, but still looks mighty attractive at a resulting 11-times multiple. Relative to the company's 15% growth rate, that tips the scales in Harsco's favor. Further adding to the bull case for Harsco, the company pays a 3.3% dividend, more than 50% more generous than what Walgreen pays.

Foolish final thought
Last but not least, did you notice that in sketching out Harsco's operations, LEGMAKER mentioned "railway construction?" Does that remind you of anybody? Warren Buffett, perhaps? Last year, Buffett made his biggest investment bet ever, paying billions to swallow Burlington Northern whole, and hitching Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) fate to that of the railway industry. If you have any faith in the Oracle of Omaha's judgment, then it seems reasonably likely that if railroads are going to generate profit for Berkshire, they'll do so for Harsco as well.

So, do you believe in Buffett? Do you agree that Harsco is likely to bounce? Tell us why (or why not) on Motley Fool CAPS.