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 the farthest. 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 Low" list at Nasdaq.com:

Companies are selected from the "NASDAQ 52-Week Low" list published on Nasdaq.com on the Saturday following close of trading last week. 52-week high and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

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 ol' 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.

This week, the air's practically filled with bouncing-baby candidates, as every single stock on our list enjoys above-average approval ratings from CAPS members. But top honors and a full five CAPS stars go to only one: the venerable Emerson Electric Co. Let's find out why as we examine ...

The bull case for Emerson Electric

• CAPS member jtancredi71117 introduced us to Emerson in April as a: "Fast growing manufacturer of process control systems, climate control systems, power technologies, electric motors & a vast array of other electrical appliances. Emerson is well positioned to globaly benefit from a building demand for this product type. ... Emerson has projected a growth of between 11% and 15% in earnings per share for 2008. ... A divident yield of 2.3% enhances the appetite for this holding. Look for strong growth in 2008 as a result of global demand and an improving consumer outlook."
• mikethejoker agreed recently that this firm is: "Rock solid. Very well run, diversified, international manufacturer that will grow somewhat faster than market. It may get bumpy if global economy tumbles, but it will bounce back."
• And as SESAMEnow pointed out in December, Emerson has, "Good foreign sales, will benefit from weak dollar."

Of course, that was nice to know when the dollar was slipping, but now that it's rebounding, foreign sales may work to Emerson's dis-advantage. So how are things holding up?

Well, growth estimates appear to be steady. Wall Street is looking for about 13% profits growth over the long term. And the stock's decline in value has pushed its dividend yield up a bit to 2.6%. That's not quite as generous as what harder-hit rival GE (NYSE:GE) is shelling out to its long-suffering shareholders. But it's considerably more than what you'll get for owning a share of competitor ABB Ltd. (NYSE:ABB).

Considering that Emerson sports a 15 price-to-earnings ratio, the stock may not look dirt cheap, exactly. But consider, too, that Emerson generates greater free cash flow than it gets to report as "net income" under GAAP. From that perspective, Emerson's resulting 14 price-to-free cash flow ratio does look reasonable.

Long story short, I wouldn't expect to see Emerson Electric burn any barns in the near future. But over the long term, it looks like a solid investment. I'd lay odds on its bouncing back in time.

Time to chime in
Indeed, over the past year, Emerson's stock may have declined, but it's fallen less far than the rest of the S&P 500. Does this suggest a likely bouncer to you, or are we just waiting for the other shoe to drop?

Those aren't rhetorical questions. We really want to know. Click on over to Motley Fool CAPS and tell us what you think.