Drop-Dead Gorgeous Stocks

So goes the thesis of my weekly Fool.com column "Get Ready for the Bounce." Therein, I run the 52-week-lows list compiled by Nasdaq.com through the "wisdom of crowds" meter that we call Motley Fool CAPS. And out the other end comes a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.

But is there a way to cash in on fallen angels who've plummeted even further? Perhaps. If a stock that's fallen for one year straight has headroom, then maybe a stock that's fallen even further, and longer, has room to come back even higher -- in which case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with five stocks that just hit their five-year lows:

Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.

Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 45% and 75% of its value over the past year alone, and most of them sit at or near their five-year lows. Wall Street has left 'em for dead, but Main Street investors think at least one of these stocks has a chance to bounce back.

The sole exception to this universal pessimism just happens to be exceptional, too, in how it arrived on the list. You see, Giant Interactive hopped a fast boat from China to arrive here today. It hasn't traded on the New York Stock Exchange anywhere near five years, because its IPO was on Oct. 31, 2007. Still, technically speaking, I supposed MSN is within its rights to say it's at its "5-year low." Also, it's far and away the best-loved stock on the list. So what the heck -- let's take a gander at ...

The bull case for Giant Interactive

• Predaking introduces us to the company: "Giant Interactive (GA), a leading online game developer that controls one of the most popular games in China, ZT Online. China's sales revenues for the online gaming market jumped 61.5% from the previous year and the number of online games is up 23% year over year. GA controls a 25% stake in 51.com, China's largest independent social networking website. The social networking powerhouse is set to come public through an IPO on the Nasdaq by the end of next year."
• It has 23% more games? 61% more gamers? Those numbers would make Electronic Arts (Nasdaq: ERTS) and Activision (Nasdaq: ATVI) drool. But it gets even better. BADROCKER wrote back in June that Giant Interactive: "says they are buying more content and expects more online players. ... With the growth on online playing among players from different locales/nations, the potential for companies to combine or share software and clients is looming. This is like the game rooms and the pool halls of generations past."
• Good points. But I'm saving the best for last. The most imaginative pro-Giant Interactive pitch comes from CAPS All-Star Tastylunch, who wrote back in February that: "[Giant Interactive] should be a screaming buy. Why? Their top game is china's top game (Zhengtu Online). ... Zhengtu Online has been described as "chinese Crack" ... Crack is very addictive."

Ah, but should we agree? After all, Giant Interactive just delivered an earnings report that prompted a downgrade from Roth Capital that sent the shares tumbling as far as 12% yesterday.

If that has you worried, then allow fellow Fool Rick Munarriz to talk you down. While Wall Street was tweaking, Rick calmly pointed out that Giant had grown its revenue 36% year over year, and its profits 33%. Hardly a "slacker" performance, he concluded.

It seems investors ultimately came around to Rick's point of view, seeing as the shares closed out the day with only a 2% loss. For what it's worth, I think that was the correct decision. Right now, Giant's shares are selling for just 12 times trailing earnings. Not too shabby for a 33% grower -- and nearly as good if Giant only lives up to analysts' long-term prediction of 23% annual earnings growth..

Copyright © 2008 Universal Press Syndicate