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 "New 52-Week Lows" list at MSN Money:

Companies are selected from the "New 52-Week Lows" list published on MSN Money 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-and-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.

And what company do we find topping this week's list of Wall Street castoffs, but professional pediatrician Pediatrix Medical Group. Much like Fool fave Natus Medical (NASDAQ:BABY), Pediatrix has taken a beating in recent weeks. Presumably, Pediatrix has been hurt in part by the same fear that has dogged Hansen Medical (NASDAQ:HNSN) and Intuitive Surgical (NASDAQ:ISRG) -- that an economic slowdown will make itself felt even in the supposedly recession-resistant sphere of health care. But as our CAPS members reveal, there are additional fears at Pediatrix -- fears that may yield opportunities as well.

The bull case for Pediatrix Medical Group

• Back in August, oxsigtech summed up the bull thesis on Pediatrix simply: "There is a baby born every couple seconds. This company is expanding and should do well in the next couple years."
• But if that's so, then why is Pediatrix occupying a gurney at the ICU door right now? Doughboy33 addressed the question a few months back: "Temporary decline in birth rates. No reason to believe it will persist over multiple years." Meanwhile, Pediatrix still has: "Good management, good business model, good competitive positioning, good balance sheet, good cash flows."
• Just "good"?CAPS All-Star Slappster begs to differ with this pitch in August: "Phenomenal returns on capital and free cash flow" (emphasis added). What's more: "they staff 1/6th of the NICUs in the U.S. and it's a limited market to begin with. I have trouble believing that lower birth rates are here to stay... up until recently the 2000's had seen the highest rates in 40 years."

I have to say: I agree with our CAPS members on this one. Reviewing the financials, I see a company trading for a 9 P/E versus 13% projected long-term growth. Even in this weak economy, Pediatrix generates strong free cash flow -- and has historically generated even more. The price-to-free cash flow ratio on this one is only a little pricier than the P/E -- 10.5 -- so the stock is still trading at a sizeable discount to its prospects.

Now wrap that all up with a strong balance sheet where net debt can be covered by just over a year's worth of free cash flow, and I see definite "bounce" potential in this baby (doctor).

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

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