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 160,000-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 5,400 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 filter out $100 million-plus companies that have seen their stock price appreciate by at least 15% in the past 13 weeks even while they remain at least 50% below their 52-week high.

Company

CAPS Rating
(out of 5)

13-Week
Price Change^

% Below
52-Week High

NCI Building Systems (NYSE: NCS  )

****

18.6%

72.0%

STEC (Nasdaq: STEC  )

***

16.4%

68.7%

PrivateBancorp

***

37.4%

55.7%

Source: Motley Fool CAPS.
^ Dec. 11 through March 8.

The bottom case
Investors in STEC have been on a wild ride lately, but many of them see several reasons why the memory maker may be looking nowhere but up today. Some contend that the shock of its latest earnings guidance, which led to a slew of Wall Street downgrades, is already baked into the share price, and they see plenty of margin for improvement from here on out.

The inventory carryover issues with major customer EMC (NYSE: EMC  ) are expected to be a drag on the next couple of quarters, but more than a few CAPS members are saying this is a great opportunity for long-term investors to pick up beaten-down shares of a strong company with solid fundamentals. STEC is coming off a quarter of strong earnings and revenue growth, and its debt-free balance sheet and recent generation of strong free cash flow mean the company should have no problem withstanding the "trough period" that's anticipated for the first half of this year.

With tech spending gaining some traction and companies like Western Digital and Cisco Systems (Nasdaq: CSCO  ) seeing an uptick in their businesses, STEC also stands to benefit as enterprises open up their wallets to upgrade equipment. Companies like Hewlett-Packard (NYSE: HPQ  ) and IBM (NYSE: IBM  ) are incorporating more and more solid-state drives into their servers and investors see STEC's strong position as a hefty moat that will help support long-term growth. 

Or dead cat in disguise?
Even though STEC may look spry, the near term could be dicey for investors, as several pain points still exist. Shares have taken several severe beatings in the past six months and many investors were caught off guard when news broke that the inventory overhang issues with EMC had not yet passed.

Despite the strong fundamentals, having a high percentage of revenue coming from one source leaves the company vulnerable, and Wall Street's sensitivity to bad news could send shares searching for another bottom if there are anymore hints of trouble. With the success that STEC has been having in enterprise solid-state drives, some investors also believe increasing competition from companies like Seagate (Nasdaq: STX  ) is guaranteed. Overall, the uncertainty surrounding the company's trajectory has some investors waiting for more clarity before jumping in.  

What's your call?
Overall, about 91% of the 720 CAPS members rating STEC are bullish and see it outperforming the broader market. For my part, I believe investors who can stomach short-term swings for long-term gains will eventually be rewarded with STEC given the trends in solid-state memory devices.

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 5,400 stocks that our 160,000-plus members have covered.

The Motley Fool Stock Advisor service looks for companies with strong management poised to beat the market over the long haul. To see all the stocks that have helped Tom and David Gardner beat the market by 55 points on average, take a free 30-day trial.

Since getting some new sneakers, Fool contributor Dave Mock is showing a little more spring in his step. He owns no shares of companies mentioned here. The Fool's disclosure policy sometimes gets wound too tight and needs a deep-tissue massage.


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