"'Don't catch a falling knife' ... 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 runs the thesis of my recurring Fool column "Get Ready for the Bounce," in which we search among the wreckage of Mr. Market's overturned cutlery drawer, hoping to find future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a potential bouncer?

I say nay. Sometimes, stocks fall far in far less time than a year -- and like a superball dropped from the balcony, the harder they fall, the higher they bounce. Today, we're going to look at a few equities that've suffered dramatic drops over the past week. With a little help from the 150,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:


How Far From
52-Week High?

Recent Price

CAPS Rating
(out of 5)

China Fire & Security  (NASDAQ:CFSG)




United States Natural Gas Fund (NYSE:UNG)




Blue Nile




WellCare Health Plans








Companies are selected by screening on finviz.com for abrupt 5% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
There's no two ways about it: If you were invested in these stocks last week, you're significantly poorer today because of it. Natural gas prices are on the decline once again, hitting the granddaddy of gas exchange-traded funds where it hurts. Then, adding insult to investors' injuries, STEC suffered the indignity of multiple analyst downgrades.

And they weren't the only stocks to suffer. Blue Nile and WellCare both turned in profitable quarters, but Blue Nile's profits failed to measure up to Street expectations, while at WellCare, a bleak outlook for quarters ahead damaged the stock (this, and the fact that rival insurers UnitedHealth (NYSE:UNH) and WellPoint (NYSE:WLP) issued considerably sunnier guidance).

Will any of these stocks recover? Sure they will. In fact, Fools see bright prospects at both U.S. Natural Gas and China Fire & Security. For my part, I've talked myself hoarse already about the long-term bullish prognosis for natural gas. So today, let's take a different tack -- and a look at the other top-rated stock for the week:

The bull case for China Fire & Security
For a company with such a long name, China Fire & Security is only a small fraction of the size of its closest U.S. analogs, the fire and security divisions at United Technologies (NYSE:UTX) and Tyco International (NYSE:TYC). But as CAPS member donsguesswork argues, it's only a matter of time before China Fire & Security catches up: "China Fire & Security, has a backlog of 154m, forecasts 2010 revenue +66%-76% to 135m to 145m. Net income plus 89%-105% yoy." For a company that did just $85 million in business last year, these are amazing growth rates.

What's driving the growth, you ask? FredEco points out that: 

The development of infrastructure is a great need in the chinese economy and [China Fire & Security] will bring fire security and other forms of security to industrial operations. This is a need that will grow and [China Fire & Security] will increase as it fills this need.

And when you marry growth of this magnitude to a small stock price (CAPS All-Star ColeKellas says China Fire & Security has "Great numbers, very low P/E"), well, you can see why Fools are getting excited about this stock.

Curb your enthusiasm
But is that excitement justified? I mean sure, China Fire & Security's 13.5 P/E looks cheap and all. And the company's projected 24% five-year growth rate is fast enough to set any growth investor's heart to fluttering. Problem is, if you look a little deeper into this company, you may discover that this growth story isn't all it's cracked up to be.

According to the most recent financial statements we have in hand, China Fire & Security claims to have earned $28.4 million over its past 12 reported months. Problem is, China Fire & Security generated very little actual cash to support that claim -- just $2.9 million, in fact. Barely 10% of reported earnings under GAAP -- and that's the good news.

The bad news is that this number is even worse than China Fire & Security has performed historically. Over the four years for which we have complete financial data on the company, it has historically generated free cash flow equal to only a little more than half its GAAP profits. Over time, you'd hope to see this gap to close somewhat, but in fact, the recent drop down to 10% shows us that the discrepancy between reported profits and real free cash flow is widening, not shrinking.

China Fire & Security: Lotsa smoke, but little fire
With a P/E in the basement, and growth rates shooting for the stars, a lot of folks are confident that China Fire & Security will bounce back from its recent troubles. Me, I'm not so sure. I see a lot of smoke here (and perhaps a few mirrors). But I'm just not feeling the fire.

Of course, that's just my opinion. I've been wrong before and I'll be wrong again. If you believe there's something more to the China Fire & Security story -- something I'm missing -- then here's your chance to set me straight.

Click over to Motley Fool CAPS now and sound off.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 669 out of more than 150,000 members. The Fool has a disclosure policy.

UnitedHealth Group and WellPoint are Motley Fool Inside Value selections. UnitedHealth Group is a Motley Fool Stock Advisor recommendation. The Fool has created a synthetic long position on United States Natural Gas. The Fool owns shares of UnitedHealth Group. The Fool has a disclosure policy.