Get Ready for the Bounce

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"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.

It's been a while, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders.

Company

52-Week High

Recent Price

CAPS Rating(out of 5)

Turkcell  Iletsim Hizmetleri (NYS: TKC) $19.93$10.87****
Kubota (NYS: KUB) $55.50$39.81***
Best Buy (NYS: BBY) $45.63$23.68**

Companies selected from the list of stocks hitting new 52 week lows as reported on finviz.com. Recent price and 52-week high provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

The week in weak stocks
Last week was a rough week for stocks. (I may be understating the case.) On Monday, the Dow dropped 5.5%, before bouncing back 4% on Tuesday. Wednesday -- down 4.6%. Thursday -- up again, 3.9%. And on Friday, an exhausted Dow Jones Industrial Average crawled to a 1.1% gain. Thanks to this mercifully "green" finale, only a handful of stocks actually ended the week at new 52-week lows. Those few, of midcap size and more, are named above.

Out of these three stocks, Fool readers should already be familiar with Turkcell, the subject of one of our columns last month. New ideas this week come in the form of Kubota and Best Buy -- but which of these two should we focus on today?

Kubota? I don't exactly hate this ag-machinery stock. But compare it with rivals Caterpillar (NYS: CAT) or Deere (NYS: DE) . Both sell for P/E ratios nearly identical to Kubota's but are growing faster and boast better operating profit margins. I honestly don't see any need to fly all the way to Japan seeking value when there are better bargains right here at home.

That leaves Best Buy as our only new idea that's potentially also a good idea.

The bull case for Best Buy
CAPS member spicarro likes Best Buy for its balance sheet strength and cheap price: "$500M in net cash on the books and trading around 8 times earnings."

All-Star investor adan04 sums up the company in four words: "low P/E cash fountain."

Meanwhile, CAPS All-Star TSIF gives us a wordier endorsement:

I like buying the solid company's after they are severly beaten down. ... Best Buy is still managing to expand. It added 150 Express Kiosks in the last three years and plans 100 more new channels next year. ... The biggest hit on Best Buy has been the decline in Television sells. I think this is more than priced in. ... Best Buy's cash flow is excellent and easily sustains the 2% dividend.

Best Buy, least loved
Yet despite the praise from all these smart Fools, Best Buy is actually the least popular stock on today's list. Its two-star CAPS rating suggests that, on balance, investors believe this company is doomed to fall further. But is it, really?

I mean, when it comes to the stock price, it's hard to call Best Buy anything but screamingly cheap. The stock costs less than eight times trailing earnings and just 6.4 times what analysts expect it to earn next year. That's cheaper than its only remaining big-box electronics rival, hhgregg (NYS: HGG) costs. It's way, way cheaper than Best Buy's real rival: Amazon.com (NAS: AMZN) .

What's more, if you examine the cash flow statement, you'll see that Best Buy is arguably even cheaper than that. With free cash flow running over $1.5 billion over the past 12 months, Best Buy shares today sell for six times the amount of cash profit it earns in a year.

Foolish takeaway
There's no denying Best Buy has issues. By undercutting its rival on price, offering free shipping on many of its products, and fighting tooth and nail to preserve its sales-tax-free status, Amazon.com is doing its level best to steal BB's market share and turn the chain into an unpaid, bricks-and-mortar showroom for Amazon's online offerings. Investors realize this, and they're not at all certain Best Buy can figure a way out of this trap.

That said, the shares' extreme cheapness suggests that this risk has already been priced in to Best Buy's stock. At just 23 bucks and change, I believe Best Buy is cheap enough to bounce off today's 52-week low.

But what do you think? Is this company a best or a worst buy? Tell us why.

At the time this article was published Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 468 out of more than 170,000 members.The Motley Fool owns shares of Best Buy.Motley Fool newsletter serviceshave recommended buying shares of Best Buy, Amazon.com, Turkcell Iletisim Hizmetleri, and hhgregg.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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