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 60 stocks listed under "computer hardware" in the CAPS' screener, we've found more than a few that are well-respected, with four- and five-star ratings. Those accolades mean that our 165,000 CAPS members are confident that these stocks will beat the market in the months ahead. Let's see what members are saying about the ones below:

Company	CAPS Rating Today	Recent Price	52-Week Price Change	Estimated 5-Year Growth Rate
Brocade Communications (Nasdaq: BRCD  )	****	$4.97	(35%)	11%
EMC (NYSE: EMC  )	*****	$18.92	24%	15%
Western Digital (NYSE: WDC  )	****	$24.17	(26%)	12%

Source: Motley Fool CAPS; Yahoo! Finance.

The markets may be digesting the Fed's pronouncement that it feels the economy is slowing more than previously thought. Still, the S&P 500 is up 12% over last year, and the average CAPS computer hardware stock is up 17% from the year-ago period. Of course, those returns got a boost from Wave Systems (Nasdaq: WAVX  ) , which jumped 128%, and 3Par, which has more than doubled after recently agreeing to be acquired by Dell (Nasdaq: DELL  ) .

Conversely, EMC supplier STEC (Nasdaq: STEC  ) lost 63% of its value, and Echelon lost a quarter of its value.

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 markets are roiled again.

Some spring in its step
All the action seems to be in storage these days. As we previously noted, Dell bought virtualization specialist 3Par, complementing its purchase of storage provider EqualLogic a few years ago. Dell's actually been on a spending spree lately to diversify its business, having purchased Perot Systems (services), Ocarina Network (data management), and KACE (systems management appliances). Dell's apparent goal: being able to take on Cisco and be all things to all customers.

That's why investors could make a case for Dell buying Brocade Communications as well. While the networking equipment provider has been the subject of many buyout rumors recently, it's profitable again and generating generous amounts of cash.

CAPS member cyclone61 thinks Brocade's financial statements need further improvement, but there's plenty of potential here still:

I work with Foundry equipment and I like them. The income statements and balance sheets look pretty bad for 2010. I believe with good products and service they can make a run for it.

EMC can't be happy about Dell's purchase of 3Par, or what it would mean if Dell did decide to go after Brocade. EMC and Dell have had a resellers agreement for years, with Dell accounting for more than 10% of EMC's revenue as recently as 2008. Dell has sold EMC's low- and mid-range storage arrays, and it says there won't be overlap with 3Par's high-end stuff.

Yet the storage specialist only just recovered from the same kind of inventory issues that caused headaches for STEC and its ZeusIOPS drive. EMC really doesn't need any more competition on its hands, particularly from customers.

birdland6147 says it's still hard not to like the position EMC finds itself in:

One of the biggest in the storage business. The numbers are great at this time. 80% stake in VMWare. What's not to like?

Driving a bargain
The winner in all this, from an investment standpoint, just might be Western Digital. While some are arguing that its hard drives are the equivalent of the buggy whip at the dawn of the automobile age, that tipping point is nowhere near arriving. But STEC's solid-state drives (SSDs) have driven up its valuation to almost 14 times earnings, and EMC trades at a multiple of more than 26 times its profits. In comparison, at just four times earnings, Western Digital is cheap. Very cheap.

Dell and Intel are both looking to profit from the next level of computer upgrades, which suggests that Western Digital and Seagate Technology (NYSE: STX  ) may enjoy strong tailwinds.

Highly rated CAPS All-Star member TMFRhino believes the threat from SSDs is overblown:

Hard drive makers are seeing insane valuations right now. Fact is, the threat of SSD's is overblown. I don't deny that SSD's will have their place, but there still needs to be cheap ways to store data, especially in large enterprises. [Western Digital] trades at around 3.5 X EV/FCF despite having a favorable outlook. That bargain basement price isn't deserved. Its balance sheet is also the best in the industry. I'd be absolutely shocked if [Western Digital] didn't outperform in the long run.

The ball's in your court
There are many factors that go into whether a stock is a buy or sell. 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.