Are These 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.          

Of the 97 stocks listed under "materials & construction" in the CAPS screener, we've found more than a few graced with well-respected four- and five-star ratings. Those accolades signal our 165,000 CAPS members' confidence that these stocks will beat the market in the months ahead. Let's see what members are saying about the candidates below:

Source: Motley Fool CAPS; Yahoo! Finance.

The market's recent decision to hit the panic button seems to be fading to a bad memory; indexes have roared ahead these past few days. CAPS' materials & construction stocks haven't fared quite so well, with average returns of just 9% year over year. Of course, weighing down those returns were companies like Xinyuan Real Estate above and China Architectural Engineering (Nasdaq: CAEI), which tumbled nearly 50%. On the flipside, Louisiana-Pacific (NYSE: LPX) more than doubled in value over the past year.

Let's take a closer look at why investors think that some of these other companies won't be jumping from the frying pan into the fire, now that the market is surging again.

Some spring in its step
Despite the Gulf oil spill disaster and President Obama's persistence in trying to impose a moratorium on drilling, we still need the stuff. Firms that service energy companies, such as Foster Wheeler, Fluor (NYSE: FLR), and Jacobs Engineering (NYSE: JEC), ought to have plenty of business.

CAPS member JasonofTepper says Foster Wheeler in particular should be able to withstand even the onslaught of a double-dip recession:

I think [Foster Wheeler] at $21 is a steal. The stock provides engineering services to energy companies. I don't see the demand for [its] services dropping off substantially even with a double dip recession. We need oil and that's not going to change soon. Buy below $22, sell about $26 to get a quick return.

Still, be careful: Only 16% of Foster Wheeler's revenues came from the U.S. in 2009, while 40% owed to Europe. The reverse is true for Fluor and Jacobs. Whatever strengths our economy may currently show, Europe is on the brink of a financial calamity. Much of Foster Wheeler's profits will be determined by the strength or weakness of the euro. If Portugal devolves into another Spain -- or worse -- the euro may unravel, hurting Foster Wheeler's results.

Secure in the knowledge
Call it a leap of faith. NCI Building Systems, a metals manufacturing and marketing specialist to the non-residential real estate industry, is buying an abandoned plant. NCI wants to give itself extra capacity, which will allow the company to reach into new regions. However, it's going to take some faith to believe that the market will support new or expanded construction.

According to the market researchers at Reis, the national office vacancy rate surged to 17.4% in the second quarter, the highest level since 1993, as office buildings lost 1.8 million square feet of occupied space. Malls aren't faring any better, with the vacancy rate hitting 10.9%, and rents not expected to recover to pre-recession rates till at least 2016.

This industry suffers from boom and bust cycles, which is why CAPS member turkita says now is a great time to buy NCI:

Great entry point now, at the low of the cycle... Just patient from now! Great management!

International markets are smokin'
It's the same situation for real estate in China. The government is slamming the brakes on the housing market -- and then standing on them, to make sure house prices don't rise anymore. Little wonder that Xinyuan is suffering, even if it gives the appearance of being a great value.

Property prices in China fell for the first time since early 2009, according to the country's National Bureau of Statistics, as 70 major cities saw prices drop 0.1% in June. But the government's not stopping there. Another housing ministry reiterated that it wanted local governments to implement the government's policies to rein in soaring prices "unswervingly." It looks like the bust cycle is about to hit China's housing boom.

However, highly rated CAPS All-Star jamespeer says Xinyuan's focus on Tier 2 cities will shelter it from most of the shocks the market will have to absorb:

Xinyuan Real Estate have a very strong balance sheet and operate in the tier 2 cities of China where asset inflation has been minimal compared with ‘Tier 1’ cities like Beijing and Shaghai, where house prices have been soaring and a lot of speculative buying takes place. As per capita income continues to increase in China, a rapidly growing number of middle-income families are coming from the rural areas and settling in these ‘Tier 2’ cities and XIN will continue to benefit from this for years to come.

The ball's in your court
Many factors 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.