Get Ready for the Bounce

"Don't catch a falling knife." Thus commandeth the old saw (to mix a cutlery metaphor.)

But if people weren't tempted to catch cutlery in the first place, there'd be no need for this little bit of investing wisdom, would there? The idea of buying a former highflier at a discount price certainly has its attractions. The trick, of course, is to increase the odds that when you make your grab, you're catching haft, not blade. That's where we come in.

In The Motley Fool's continuing effort to keep your investing dollars safe, we once again assume our position beneath Mr. Market's silverware drawer. As the knives plummet, we'll measure who's fallen farthest. Then we'll head over to Motley Fool CAPS, and ask which of these stocks -- if any -- Foolish investors think are ready to rebound to new highs.

With that said, let's meet today's list of contenders, drawn from the latest "52 Week Low" list at Nasdaq.com:

If there's one good thing about a broad-based market sell-off, it's that you find a lot of terrific companies getting the old baby 'n' bathwater treatment. Tossed out on their rosy little bums as if they were bums of another sort. You know -- just know -- that some of these babies are gonna bounce right back once the suds subside.

How long will it take? No one knows. But as we're already several percent into the latest market downturn, it can't hurt to start sifting through the wreckage. Maybe we'll find something worth buying today -- maybe just a few ideas we can revisit if the stocks get even cheaper.

This week, CAPS investors see several bargains on the block: four stocks with above-average four-star ratings or better. The one leading the pack is none other than the gaming stock who's pounding was profiled by fellow Fool Rick Munarriz on Friday: The9 Limited. Does the firm's 51% decline in earnings justify the pounding it took last week, or can this Chinese World of Warcraft operator bounce back? Judge for yourself as three of our CAPS All-Stars lay out for us ...

The bull case for The9 Limited

• TheGarcipian painted us a mental picture last summer: "Imagine World of Warcraft on steroids but you still can't a get good handle on what NCTY is all about. Throw in more online RPGs (Role Playing Games) like Guild Wars, Ragnarok, Hellgate: London, and a handful of others, but you still won't get the entire picture. Not until you throw in the big Feng Shui factor: there are potentially 4x-6x more Chinese adolescents and twenty-somethings that adore these games than in the USA. And they will be playing them online with their friends over networks run by the likes of The9 Limited (NCTY)."
• But those USA kids have computers! How are their Chinese counterparts going to get online? A couple of months after the above pitch, tuffsledding pointed out that, "Rapidly increasing access to computers, increasing disposable income and leisure time is the perfect storm for online game companies in China. Bumpy ride is likely, but the direction will be up for the forseeable future."
• And last week's earnings miss? tenmiles suggests that you might want to take advantage of what happened. Just last Friday he wrote: "I'm using price decline to go long this rapidly growing online game developer. Appears to be classic small cap over-reaction; missed earnings expectations by 20% (.04) but grew registered users substantially. Debt free company with $10/share in cash generating mid-teen ROE with a large pipeline."

Classic overreaction? I'll say. The stock lost nearly a third of its market cap in the space of a single trading day. Yet at today's price, it's trading for just 14 times trailing earnings (that includes the earnings miss, remember) while analysts expect it to grow profits at 23% per year over the next five years. Granted, those estimates have gotten a bit more suspect since Friday, but if they prove anywhere close to correct in the long term, The9 really could turn out to be a "10" of an investment.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about The9 Limited -- or even what other CAPS players are saying. We also want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.