As you may already know, our Fool Community of discussion boards is a vast arena where thousands of interesting discussions are taking place on countless topics related to money, investing, and life in general. One particularly inviting nook is our Value Investing board, where bargain-minded investors gather to look for promising stocks at attractive prices.

There, you will find several posts talking about results from screens of stocks hitting new 52-week lows. This in itself isn't surprising: Active investors are always on the lookout for attractive investments, and value-oriented investors are especially interested in looking for companies trading well below their intrinsic value. It makes sense to look among those firms that have tumbled over the past year.

Consider these companies:

  • Centex (NYSE:CTX)
  • Dillards (NYSE:DDS)
  • Harley-Davidson (NYSE:HOG)
  • Korn-Ferry (NYSE:KFY)
  • Moody's (NYSE:MCO)
  • New York Times (NYSE:NYT)
  • Talbots (NYSE:TLB)

Looks promising enough, right? Well, that list is actually from last year. Let's see how these stocks have fared over the past year:

Centex

(42%)

Dillards

(43%)

Harley Davidson

(11%)

Korn-Ferry

(7%)

Moody's

(18%)

New York Times

(28%)

Talbots

(21%)

What it means
What can we learn from this list? Here are a few takeaways:

  • Anyone who bought some of these companies mainly because they'd fallen significantly would have experienced some painful losses. If you average the seven returns, you'll end up with an average loss of more than 24%, which is even worse than the overall market has done.
  • By themselves, lists of companies that meet one or two conditions aren't typically very useful. The more you learn about a company, the better you'll often do. It can really help, for example, to know why a company has fallen on hard times. Temporary problems are much less worrisome than long-term problems.
  • How a stock has done in the past year doesn't usually involve any kind of end-point. You're just looking at two points along a long continuum -- its current stock price versus its year-ago price. In the days, months, and years ahead, the stock may continue dropping, or it may eventually turn around. Some of the companies posting negative numbers above may still turn out to be good long-term investments -- it may just be too soon to tell.
  • It can also be useful to look at companies hitting 52-week highs. These firms may be on a roll, perhaps recovering from previous slumps.

What to do
How should you approach such lists? Well, go ahead and be excited at having a group of investment candidates, but then buckle down and study them. If they are in fields you know nothing about and have little interest in learning about, you're generally better off avoiding them. Korn-Ferry, for example, helps companies recruit employees. Does that make you yawn? If so, think about Talbots -- do you want to keep up with the latest developments in retail? If your answer is "no," then perhaps move on. If the only thing you know about motorcycles is that you think they're too loud, then you might not want to buy Harley-Davidson.

When you find companies that you seem to know and understand, dig deeper. Pore through their financial statements and see how healthy they are -- how much cash and debt they have, and how quickly their sales and earnings are growing. Beware if their accounts receivable or inventories are growing more quickly than sales. Evaluate their competitive position and avoid any firms without strong competitive advantages.

If all this sounds like a lot of work, it is. Another option you have is seeking out lists of investment candidates that have already been screened for many important factors. For example, a newsletter such as our Motley Fool Inside Value can deliver regular recommendations to you, vetted by our analyst Philip Durell, who studies them deeply and often talks to the companies' management. Together, his picks so far are up 2% versus a loss of 4% for the S&P 500. Keep in mind that many of those stocks were chosen due to recent underpeformance, and he expects that their surging days are still ahead of them.

We invite you to take advantage of a no-obligation free trial of the newsletter service, which will give you access to all past issues, so you can read in depth about any or all of Philip's recommendations. We think you'll be impressed with his list of companies: It includes some very familiar names and firms you might be happy you learned about.

Here's to a happier portfolio!

This article was originally published on Sept. 21, 2006. It has been updated by Dan Caplinger, who doesn't own shares of the companies mentioned in this article.

Longtime Fool contributor Selena Maranjian doesn't own shares of the companies in this article. For more about Selena, view her bio and her profile. Moody's is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.The Motley Fool is Fools writing for Fools.