Can These Stocks Bounce 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.    

There are 127 stocks listed under retail in the CAPS' screener, but more than a handful of them carry well-respected four- and five-star ratings. Those accolades mean many of our 170,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:

Source: Motley Fool CAPS; Yahoo! Finance.

The markets may reflect an upbeat feeling about the economy after a few reports offset some of the negativism we've seen. With the S&P 500 up 12% compared with a year ago, CAPS retail stocks have done almost twice as well: The average stock is up more than 22%.

Cost Plus World Market, with an amazing 948% jump, and department store chain Dillard's, which doubled in value year over year, helped the sector outperform.

Of course, in addition to the Chinese drug store chain and the electronics chain above hurting returns, Sears Holdings (Nasdaq: SHLD) fell 30% over the past 12 months and Rite-Aid (NYSE: RAD) lost almost 40%. So let's take a closer look at why some investors think some of these other companies won't jump from the frying pan into the fire.

Some spring in its step
Santa delivered a lump of coal to teen retailer Aeropostale, whose same-store sales fell 5% in December -- well beyond the 2.6% decline analysts had anticipated. It was also a big change in direction from a year ago, when comps rose 10%, but that was when consumers were really breaking out of their self-imposed restraint.

Aeropostale wasn't the only clothing store that disappointed investors. Gap's comps were down 3%, and American Eagle Outfitters was forced to reduce earnings guidance because of the anemic month. But Abercrombie & Fitch (NYSE: ANF) has made a dramatic turnaround, and its same-store sales rose 15% from a year-ago.

Analysts really misread the consumer's mood when suggesting the big jump in November sales would carry over to December. It was more a factor of retailers pumping up promotions around Thanksgiving than consumers going back to shopping. That carried over into other retail streams, too, including consumer electronics, where Conn's and Best Buy (NYSE: BBY) were both disappointing. Best Buy in particular bet heavily on consumer interest in 3-D and Internet-ready TVs that never materialized.

Investors, though, think the clothing retailer and the small electronics shop still represent good deals. Of the CAPS members rating Conn's, 95% believe it still has market-beating potential, while 92% of the members rating it say Aeropostale still does, too. CAPS All-Star XMFConnor says the teen retailer is just plain cheap.

This is my favorite pick for 2011. It is the cheapest teen retailer out there based on virtually any metric. It is trading at just 4X EBITDA... for a business that consistently generates extremely high ROIC and positive same store sales (even during the recession), I find that price ridiculously cheap. This is a real money (and high conviction) pick for me.

Coloring between the lines
There doesn't seem to be much accounting for China Nepstar Chain Drugstore's big run-up over the past week. Its stock rose 34% as trading volumes jumped after Barron's published some positive analyst notes. The chief financial officer abruptly resigned in November, and Goldman Sachs recently put a sell rating on it.

The Goldman announcement is curious, considering the investment house owns almost one-quarter of the outstanding shares, and the former CFO popped up at ShangPharma.

Of the CAPS members rating it, 96% look for it to outperform the broad market averages. Add your opinion on the China Nepstore Chain Drugstore CAPS page.

The ball's in your court
There are many factors that go into whether a stock is a buy or a 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 on whether you think these stocks are ready to bound higher.