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)

National Fuel Gas (NYS: NFG) $75.98$42.79*****
Arcos Dorados (NYS: ARCO) $29.43$12.44*****
SK Telecom (NYS: SKM) $19.65$12.11****
Titanium Metals (NYS: TIE) $19.19$12.08*****
Atmel (NAS: ATML) $15.37$7.02*****

Companies selected from the list of stocks hitting new intraday 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
No two ways about it -- last week was a miserable five days to be in the market. According to TheWall Street Journal, the Dow turned in its worst one-week performance since November of last year, and as of today, has almost completely erased its gains of earlier in the year... and that's the good news.

The bad news is that across the market, many stocks are hitting even lower points -- their lowest points in a year, in fact. Up above, you see five such stocks, each of which is rated with four or five stars on CAPS. Presumably, therefore, they're all attractive investments at today's depressed prices. But does that presumption stand up under examination?

Not really. In fact, the prices investors are asked to pay for these companies (and hence, their attractiveness as investments) vary pretty widely. At the high point, for example, McDonald's franchisee Arcos Dorados costs 25 times trailing earnings. Prices get more reasonable from there on down: 19 times earnings for Timet, 17 times for National Fuel, and only 12 times for Atmel... all the way down to Korean mobile operator SK Telecom, selling for the lowly P/E of just 6.3.

Incidentally, SK Telecom is also the only stock on this list that, at last report, was generating more actual free cash flow than it reported as "net income" under GAAP. (Three of the others -- Arco, Timet, and National Fuel, were actually burning cash.) And SK is also the only stock of the five that sports an enterprise value-to-free cash flow ratio lower than its rate of long-term projected profits growth. For these reasons, I think it's worth taking a closer look at...

The bull case for SK Telecom
Fellow Fool and CAPS All-Star TMFDeej calls SK Telecom a "super cheap Korean telecom."

SupaG adds that SK "owns the domestic S. Korean telecom market, and is moving into international ones."

rbmoore2 (and others) like the stock's "good dividend"... but there seems to be some disagreement on exactly how good that dividend is. One CAPS member puts it at 5.8%. Another, at 5.9%. When you consider just how hungry for generous dividends investors have been in recent months, you'd think numbers like these would attract some interest.

And yet, if you use Yahoo! Finance for your basic financial research, as so many of us (yours Fool-y included) do, the site is telling you that all you can expect out of SK is a measly 1.3% yield -- far too low to attract the interest of most income investors. (Indeed, the several stocks we profiled in our recent report on "9 Rock-Solid Dividend Stocks" pay much more generously. See for yourself -- read the report for free by clicking here.)

But here's the thing: SK Telecom historically paid dividends twice each year. The first, coming mid-year, is small compared to a larger year-end dividend based on the company's annual performance. That large, year-end dividend isn't captured in the yields mentioned above. Instead, according to authoritative financial data warehouse S&P Capital IQ, the actual dividend yield at SK Telecom is not 1.3%, but a much more generous 7.3%.

Foolish takeaway
That's not just a bigger number. It's big enough to pretty much justify the stock's 6.3 P/E ratio all on its own -- no growth required. When you consider, though, that analysts predict SK Telecom will grow over the years to come, and at an average rate of about 8% per year over the next five years, the stock looks like an out-and-out steal.

That's why I've personally and publicly recommended buying SK Telecom in my Motley Fool CAPS portfolio. That's why I'm sticking with the recommendation today.

At the time this article was published Fool contributorRich Smithdoes not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 306 out of more than 180,000 members. The Fool has adisclosure policy.The Motley Fool owns shares of Arcos Dorados Holdings.Motley Fool newsletter serviceshave recommended buying shares of Titanium Metals, Arcos Dorados Holdings, and McDonald's. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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