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
As trading wound down ahead of Easter holidays on Thursday, the Dow managed to hold above the 13,000-level last week -- but only by its fingernails. A few dozen points more of slippage, and we'll be back in the 12,000s. Meanwhile, our five stocks today are already plumbing deeper depths, rolling around at their lowest points in a year. Do they deserve it?

Sure, Polycom got whacked on weak guidance Thursday. But at just over 19 times earnings, and with growth prospects nearing 18% annually for the next five years, the stock looks close to fair value today.

And as for GoldCorp, Newmont Mining, and Barrick Gold, near-record gold prices are doing little to lift the share prices. But a Citigroup report out last week predicted that gold will hold on to its high price, and even go up a bit, over the course of this year. With forward P/E ratios in the single digits for Newmont and Barrick, share prices look good. Even GoldCorp, at 12 times earnings but with 11% projected long-term growth, hardly seems expensive. Maybe here at their 52-week lows, there's nowhere to go but up?

The best bargain of the bunch, though, in the opinion of our CAPS community, is Spanish telecom giant Telefonica. Far be it from me to argue with the majority ... so let's see whether we can figure out why individual investors believe Telefonica is the single stock on this list most likely to pop in the near term. Let's dive right into ...

The bull case for Telefonica
Concerns that Europe's never-ending debt crisis will cause the Continent to come unhinged, break off, and fall into the Atlantic have investors shunning anything and everything associated with Europe. That's obviously not good for a company whose fortunes are tied to one of Europe's most troubled economies. Yet regardless of these "euro fears," CAPS member CapngainerII argues that Telefonica's "high dividend, and ... recession resistant industry" will carry this stock through in the end.

TradeDragonfly agrees that the business of "phone service isn't going to go away because of Spain's fiscal issues."

Meanwhile, ace CAPS player elvisbeatlesfan points out that investor fears have given us a chance to grab a "nice yield at this entry price." Should we take it?

Well, let's see here. According to S&P Capital IQ, the current dividend yield on a share of Telfonica is a whopping 14%. Some investors worry that troubled times could cause Telefonica to cut its dividend, but honestly, with the payout ratio only at 109%, even a sizeable cut would probably still leave shareholders with a pretty nice dividend yield.

And it's even possible that no cut will be necessary. After all, while Telefonica admits to $7 billion in annual profits based on GAAP accounting, a close look at its cash flow statement reveals that actual cash profits at the company are more than 50% higher than the reported amount -- $10.9 billion. This suggests to me that Telefonica's dividend payout may not be at such great risk as many people fear.

Foolish final thought
Priced at less than 10 times earnings today, Telefonica has a dividend basically covers the cost of buying the stock in just seven years. That's if the company grows not at all -- but in fact, despite all Europe's troubles, analysts still expect Telefonica to grow earnings at close to 6% going forward.

Based on these numbers, I can't help agreeing with the majority: Telefonica looks like a good bet to me. Good enough, in fact, that I'm going to put my reputation for 70% accuracy on the line and publicly endorse Telefonica as a market-outperformer on CAPS today. (Think I'm wrong? Follow along.)

Like dividends, but leery of Europe? Never fear, intrepid Fool. We have nine other big-dividend-paying ideas for you -- all free for the downloading in our new report: "Secure Your Future With 9 Rock-Solid Dividend Stocks."

At the time thisarticle 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. 375 out of more than 180,000 members. The Motley Fool owns shares of Citigroup.Motley Fool newsletter serviceshave recommended buying shares of Polycom. The Motley Fool has adisclosure policy.We Fools don't 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.

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