3 Stocks Springing Back

With all the volatility in the markets today, there's no shortage of market seers attempting to call a bottom. Man of the Year Ben Bernanke called a bottom not once, but twice. Heck, even Keanu Reeves laid out what a world-ending market bottom looks like.

Investors should consider buying stocks after a big decline, when pessimism has unduly beaten good companies down to great prices. That's why we here at the Fool -- and 145,000-plus investors like us -- look to the Motley Fool CAPS community to help sniff out the real opportunities from languishing companies driven by speculation.

A real bottom or another leg down?
Of course, there's no foolproof method for timing a market bottom. But CAPS has a great balance of both quantitative and qualitative resources available on 5,300 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential investment opportunities. Once we've rounded up our candidates, we can use all the information in CAPS to test whether each company has already hit bottom or simply primed shareholders for further pain.

I've used the CAPS screener to find $100 million-plus companies that have seen their stock price appreciate by at least 15% in the past 13 weeks, even while they remain less than 35% above their 52-week low.

Source: Motley Fool CAPS. Results from Oct. 9 through Jan. 4.

The bottom case
Cephalon stock has been bouncing along below $60 per share for months now, but recent news and a breakout in the stock has many investors more confident in its future. Cephalon has several drugs on the market and in its pipeline, so the potential for solid profits has a good majority of CAPS members bullish.

It recently raised the price of its top sleep disorder drug, Provigil, by 29%, which some investors expect to provide a short-term revenue boost. It's also seen as part of a strategy to encourage patients to switch to Provigil's successor, Nuvigil -- similar to AstraZeneca's (NYSE:AZN) switching patients from Prilosec to Nexium -- before Provigil loses patent protection in a couple of years and faces competition from generic players like Mylan (NASDAQ:MYL) and Teva Pharmaceutical (NASDAQ:TEVA). Cephalon is marketing Nuvigil aggressively and is also seeking approval for other indications that could significantly expand its profit potential.

Cephalon is also looking at a big market for Treanda, which is already approved as a second-line treatment for non-Hodgkin's lymphoma. A recent study showed some promising results as a first treatment for the disease when combined with Rituxan from Roche and Biogen Idec (NASDAQ:BIIB). Sales of the drug in the third quarter more than doubled from a year ago, and some researchers see potential for Treanda and Rituxan to become the new first treatment option over the standard chemotherapy regimen.                    

Or dead cat in disguise?
Yet even though Cephalon looks to be on the brink of several pivotal financial windfalls, there are risks. Provigil counts for about half of the company's revenue and, like other companies such as Bristol-Myers Squibb (NYSE:BMY) and Eli Lilly (NYSE:LLY), it is standing on the patent cliff's edge, which has the company grappling with the challenge of filling the anticipated revenue gap.

Provigil's sales already took a dip in the third quarter and Cephalon projected total sales below analyst expectations for 2009 and 2010. Despite the potential short-term boost from Provigil's price increase, Cephalon could see slowing revenue growth as more patients switch to the cheaper Nuvigil. Its pay-for-delay deal with Provigil has fended off competition in the past, but it also faces a battle in court with Teva over Nuvigil.       

What's your call?
Overall, 95% of the 375 CAPS members rating Cephalon are bullish and see it outperforming the broader market. For my part, I see the potential in Cephalon outweighing the challenges as well, and the current valuation compared to peers leaves some room for error.

But what ultimately counts is your own opinion; CAPS is just there to help you form it. The best part is that the Motley Fool CAPS database is all free, and you can even add your own insight on any of the 5,300 stocks that our 145,000-plus members have covered.