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.

I've used the CAPS screener to filter out $100 million-plus companies whose stock prices appreciated by at least 20% in the past 13 weeks even while they remain at least 25% below their 52-week high.

Source: Motley Fool CAPS. Results from Feb. 19 through May 19.

Avanir expects a decision from the FDA for its pseudobulbar affect treatment Zenvia by the fourth quarter, and it has recently tapped the equity markets to help fund operations. But with a recent FDA approval under its belt and a big milestone payment, POZEN's recent momentum has been getting a lot of attention and warrants a closer look.

The bottom case
CAPS investors cite several reasons why POZEN is looking stronger today and has more upside locked in its stock. Rather than just being a cash-burning drug developer, the company has a solid revenue stream on drug development and royalties coming in and a recent FDA approval on a new one. It recently reported a 67% jump in licensing revenue from partner GlaxoSmithKline (NYSE: GSK) on higher sales of its migraine drug Treximet. And the recent FDA approval of its arthritis drug Vimovo lands it a $20 million milestone payment from partner AstraZeneca (NYSE: AZN), with possible milestone payments and royalty payments on sales forthcoming.                                  

Painkillers Vioxx and Bextra, from Merck and Pfizer respectively, were pulled from shelves years ago, thanks to serious issues with side effects related to Cox-2 inhibitors. Vimovo aims to fill that gap while alleviating gastrointestinal side effects by containing AstraZeneca's Nexium. With the promising profile of the drug combination, Jeffries analyst Eun K. Yang sees peak annual sales potential of Vimovo of $300 million. With the addition of $100 million for Treximet, the increasing sales and royalties potential was enough for Yang to give an upgrade of the stock. And with much larger drug companies on POZEN's team helping push the treatments, some CAPS members see increased potential to maximize sales. 

Or further to fall?
Even though POZEN has given investors lots to look forward to, the stock has already made a big run this year in anticipation of Vimovo's approval and, since the decision, has taken a plunge as more investors have chosen to sell off shares. The company's profits have been minimal in recent years, and at just a two-star rating in CAPS, a good portion of members rating the company remain bearish on its outlook. Many investors recognize that the potential for generic competition in the future could also be a significant threat to sales. The battle is already well under way as POZEN recently agreed to a settlement with Teva Pharmaceutical (Nasdaq: TEVA), which has a history of aggressively launching generics. While it cleared the path with Teva, POZEN is still in litigation with several other generic-drug makers.

What's your call?
Overall, about 83% of the 163 CAPS members rating POZEN are bullish and see it outperforming the broader market. For my part, POZEN's small size and marginal profitability profile relative to its valuation keep me at a distance.

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.