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 have 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.

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
Wall Street knocked investors for a loop last week. The Dow Jones Industrial Average (INDEX: ^DJI) posted its worst Thanksgiving week performance in 69 years, sending hundreds of stocks tumbling to new 52-week lows.

What went wrong? It wasn't always clear. As I mentioned last week, salesforce.com was recently punished despite reporting earnings that beat consensus estimates, and despite raising guidance and boosting estimates going forward. The stock continues to slide regardless.

At Research In Motion, shoppers are rioting in Indonesia, literally fighting for the chance to buy a BlackBerry Bold. Here in the U.S., RIM has cut the price on its PlayBook tablet in an effort to grab market share, while one rival, Apple, is said to be selling fewer iPads than predicted; while another, Hewlett-Packard, just wrote off a $1.7 billion investment in Palm's tablet technology and has been sent back to Square One. Sounds like good news for RIM -- yet the stock's down 12% on the week.

And the banks? Bloomberg just reported that U.S. lenders are coming off their "most profitable quarter since 2007." Yet worries over their exposure to European debt persist and have SunTrust and B of A trading at yearlong lows.

Consequently, CAPS investors seem less than enthused about the prospects for all of these stocks -- with one exception: five-star-rated Brazilian telecom Tele Norte Leste. Let's find out why, as we review ...

The bull case for Tele Norte Leste Participacoes
All-Star CAPS investor foontok introduced us to Tele Norte two years ago as a provider of "landline, broadband, and wireless" telecom services "in a growing market." Or CAPS participant continues: "Second largest wireless service in Brazil. As a Brazilian company, it has a home field advantage."

CAPS member OhianTx78 expects Tele Norte to enjoy a burst of popularity "once [the] Olympics start in Brazil."

That's in 2016, by the way, so anyone hoping for a pop in the stock based on Olympic exposure has some waiting to do. Fortunately, as CAPS member nightsinbear reminds us, Tele Norte is happy to pay investors for their patience: "this is a great div play with sold foundations and is in one of the biggest growing markets there is."

Indeed, Tele Norte offers a dividend yield on par with what you can get from American telecoms like AT&T (NYS: T) or Verizon (NYS: VZ) . At the same time, it offers far greater growth potential. The two ex-Ma Bell divisions currently sport megacap market caps of $160 billion and $100 billion, respectively. Tele Norte, in contrast, is valued at all of $4 billion -- and has plenty of room to grow.

Foolish final thought
The big question, of course, is how fast and how far Tele Norte will, in fact, grow. At 16 times earnings, the stock carries a higher P/E than either AT&T or Verizon sport. Problem is, no one's quite sure whether Tele Norte will grow fast enough to support that valuation -- or even whether it will grow at all. According to Yahoo! Finance, the company is expected to see earnings contract over the next five years. S&P Capital IQ, in contrast, posits growth rates anywhere from as low as 14% per year (over the next five years) to as high as 51%!

That's a pretty wide range of possible outcomes. Call me a crazy optimist, but I think the prospects for growth in Brazil look bright, and the prospects for Tele Norte, likewise. Plus, with a near-6% dividend to support it, I suspect all Tele Norte really needs is 10% growth to make its stock price reasonable. Anything more than that -- and yes, I believe this stock could pop.

Not sure you want to invest in individual stocks located in foreign lands? No worries. If you're more comfortable sticking with broad-based ETFs, we have you covered there, too. Read the Fool's new -- and free! -- report on3 ETFs Set to Soar During the Recovery.

At the time thisarticle was published Fool contributorRich Smithowns no 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. 299 out of more than 180,000 members.The Motley Fool owns shares of Apple and Bank of America.Motley Fool newsletter serviceshave recommended buying shares of Apple and salesforce.com and creating a bull call spread position in Apple.Motley Fool newsletter serviceshave also recommended shorting salesforce.com. 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.

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