5 Stocks Bouncing Back

However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.          

Among the 472 stocks listed under health care in the CAPS' screener, we've unearthed some with five-star ratings. Those accolades mean our 145,000 CAPS members are confident that these stocks will beat the market in the months ahead. Let's see what members are saying about the five below:

Sources: Motley Fool CAPS and Yahoo! Finance. LT = long term.

As the broader market averages have staged a pretty bold recovery since their depths back in March, even health-care stocks have had a strong run-up, despite the changing prospects for a government-run system. The average company is up more than 86% from the year-ago period, including such big winners as Vanda Pharmaceuticals (NASDAQ:VNDA), which is up more than 2,000%!

So let's take a closer look at why investors think one of these companies won't be jumping from the frying pan into the fire from the market's lofty heights.

Some spring in its step
You have to wonder sometimes about how the market values competitors. Exelixis (NASDAQ:EXEL) doesn't have any drugs on the market but is assigned a $774 million market cap, while Spectrum Pharmaceuticals, although losing money at the moment, has two revenue-producing drugs, and is priced under $200 million.

Of course, a lot of moving parts go into investor sentiment, with products being only one small component. Exelixis, for example, has a fairly robust pipeline and partnerships with big-name pharmaceuticals that are willing to fund its R&D operations. Spectrum's two drugs, on the other hand, have combined revenues of just $23 million year to date. And the FDA said that data on one of them, Fusilev, which treats advanced metastatic colorectal cancer, failed to confirm the drug's "non-inferiority" to a rival product.

Spectrum's potential could change in very short order, though. Its other drug, Zevalin, received FDA approval in September to be a first-line of defense against non-Hodgkin's lymphoma. Sales for the first full month under the new status were in excess of $2 million; that represents 42% of the revenues it realized in the entire third quarter. Extrapolate such monthly sales forward and Zevalin could have a salubrious impact on results. If Spectrum can get Fusilev to fall in line, top-line results should markedly improve even further.

With its stock down more than 30% over the past three months, this could be one health-care company bouncing back strongly. Although Exelixis may have a deeper bench of products to investigate, CAPS member LookknforFun supports Spectrum's potential:

Spectrum Pharmaceuticals will tend to outperform S&P 500 due to increasing sales trends from Zevalin and possible approval of Fusilev. Combined sales from the two have the potential to reach approx. 400M in US. Assuming they reach 200M it would be a substantial gain in market share and approx. 10 fold increase in revenue over the prior year. 
Additionally there may be some news and milestone payments received for Apaziquone and interim results from their ongoing PIII. Spectrum should receive milestone payments at the completion of PIII trial enrollment sometime in the 1H of 2010. 
Additional licensing revenue for other compounds in their pipeline is also possible.
12 month price target for SPPI is approx. $12 which will be much larger than S&P 500 return at low to medium risk.

I've decided there are enough positive developments before Spectrum that it's worth a position in the speculative section of my CAPS portfolio. Join me on Spectrum Pharmaceuticals' CAPS page to rate the stock to outperform the market over the next several years. However, if you think the biopharmaceutical doesn't have the potential for a full spectrum of drug development, let us know in the comments section below.

The ball's in your court
There are many factors that go into whether a stock is a buy or sell, so it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Head over to CAPS today and share your thoughts with other investor analysts on whether you think these stocks are ready to bound higher.