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, to see which knives have fallen the farthest. Then we'll call on CAPS to find out 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 Nasdaq.com.

On Friday, no fewer than 308 listings on the NYSE hit their 52-week lows. That's roughly one out of every 12 securities trading on the big board. The Nasdaq was nearly as bad, with 295 new lows, or roughly one stock in 11 hitting bottom. It's a mess out there, no doubt. But 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-with-the-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.

Case in point: Look at the companies on today's list. Standout, name-brand companies, every one; I have little doubt that we'll find a winner here. In fact, more than half of the companies on today's list are current Fool recommendations: Motley Fool Rule Breakers likes Headwaters and Under Armour, while Motley Fool Stock Advisor cheers Yahoo!

As for the newsletter service most adept at bottom-fishing, Motley Fool Inside Value, it's recommended Waste Management and has made Markel coverage a bonus for subscribers. It's that last company we'll be discussing today, as we turn to ...

The bull case for Markel

• Nearly half the pitchers on CAPS describe insurance underwriter Markel as a Berkshire Hathaway lookalike, and CAPS All-Star MJKpayday is no exception. "If I were asked for a company I could invest with, never keep up with, never look at the price, and not give it much thought for 10+ years I would say Markel is your best bet. Markel is a Buffet-esque type insurance company investing its income in equities to grow their book value. The [management] and their lineage have been with the [company] since the 20s and hold considerable positions. Over the last 17 years the book value has grown ... [at] an annualized return of 25%. ... My bet is the management will meet or exceed their stated goals of 20% [return on equity] and continue their amazing run for those 10+ years I mentioned."
• Likewise, fellow All-Star noryakerson, who mused last October, "I remember looking at BRK/A when it was $10,000 wishing I had the funds to buy 1-2 shares. Oh, if only I had. ... Ten years from now I won't have the same regret looking at the shares of MKL I picked up for just under $500."
• So it's a great company. But is the price right? hoosiereagle informed us a couple of months ago that Markel "[u]sually trades over 2x [book value] and is finally in the buy range again at <1.8x."

Me, I don't know a lot about insurers. But I do know that Markel has sagged along with the market lately and that its price-to-book value today is closer to 1.6. If hoosiereagle's right about the historical valuation, we could be looking at a 20% discount to fair value here, a level that should give patient investors a nice bounce -- eventually.

I also know that the key statistic to focus on in evaluating an insurer is its "combined ratio" -- the percentage of the premiums it collects that an insurer pays out in claims and expenses (before counting its profits from investing those premiums). Markel's 87 combined ratio compares favorably with the upper-80s ratios at Travelers, AIG, and yes, Berkshire Hathaway, too. Seems to me that we may have found our winner.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Markel -- or even what other CAPS players are saying. We also want to hear your thoughts. Is Markel too good to be true, or is this the real deal? Click on over to Motley Fool CAPS, and tell us what you think.

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