Drop-Dead Gorgeous Stocks

"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."

So goes the thesis of my weekly Fool.com column "Get Ready for the Bounce." Therein, I run the list of 52-week lows compiled by Nasdaq.com through the "wisdom-of-crowds" meter that we call Motley Fool CAPS. And out the other end comes a list of stocks that have fallen so far, Foolish investors figure they're bound to bounce back soon.

But is there a way to cash in on fallen angels who've plummeted even further? Perhaps. If a stock that's fallen for one year straight has headroom, then maybe a stock that's fallen even further, and longer, has room to soar back even higher -- in which case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with five stocks that just hit their five-year lows:

Companies are selected from the "New 5-Year Lows" list published on MSN Money on Friday. CAPS ratings from Motley Fool CAPS.

Left for dead or drop-dead gorgeous?
Each of the stocks listed above has shed between 25% and 80% of its value over the past year, and currently sits at or near its five-year low. Wall Street has left 'em for dead, but Main Street investors think at least one of these stocks has a chance to bounce back.

Or perhaps "float back to port" is the better metaphor. For while the five stocks above span the breadth of the CAPS star constellation -- one to five stars -- only one gets the coveted top ranking: Greek containership operator Danaos.

Now, I know what you're thinking: Greek shippers? What's the name of that one that's been giving all y'all Fools fits every since Stephen Ellis panned it a couple of years ago? Well, that one is called DryShips (NASDAQ:DRYS), and yes, betting against it has torpedoed the CAPS reputation of many a Fool (your humble author included). Fortunately, today we're looking at the other side of the trade, focusing not on the negative, but on ...

The bull case for Danaos 

CAPS member ez2foome introduced us to Danaos last year: "[Danaos], a micro-cap growth co, in the transportation sector operates a fleet of container and dry cargo ships, posting a profit margin of nearly 70% and return on equity of more than 37%. Good global economy play, IMO." (Of course, both the profit margin and the return on equity have shrunk a bit.)

Soon after ez2foome's pitch, f00lishinvestor clambered aboard Danaos as well, arguing that the company "should continue to outperform not just the broader market but also most other shippers." Our player continued:

Its got a good dividend, but besides that, great and seasoned management. They got out of dry-bulk shipping because of lack of service (higher margins) opportunities in that sector. They have perhaps the largest fleet of TEUs and have all the right connections in the Far East to be able to provide long-term charters. They are already looking beyond Panamax and commissioning bigger and more efficient ships, because Panama Canal is set to be widened.

CAPS All-Star reallan commended Danaos last October for its "[g]ood management" and noted that the company is "increasing the size of the business with 5 new ships" and that "China needs lots of goods shipped to them."

Of course, China itself hasn't been so hot lately, with its stock market in a free fall this year that makes the S&P's troubles seem benign. Worries over the implications for global shippers have helped sink many shipping companies' shares these past couple of months -- DryShips, Excel Maritime (NYSE:EXM), Diana Shipping (NYSE:DSX), and yes, Danaos.

The good news is that, if you believe the analysts' estimates, this downturn in the market now has Danaos trading for a reasonable price -- less than eight times trailing earnings, versus consensus expectations of nearly 9% long-term growth ahead.

Time to chime in
Danaos looks cheap, sure. But is it drop-dead gorgeous? You tell us.

Post your pitch on Motley Fool CAPS and tell the world what you think: It's fun, it's free, and it just might make you famous.