5 Stocks Ready to 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.          

Among the more than 820 stocks listed under services in the CAPS' screener, we've unearthed a few with high five-star ratings. Those accolades mean our 135,000 CAPS members are confident that these stocks will beat the market in the months ahead. Let's see what members are saying about the five below:

Source: Motley Fool CAPS; Yahoo! Finance.

According to our CAPS database, Service companies declined an average of 12% over the past year. However, there were still some notable outperformers, such as Dollar Thrifty Automotive (NYSE:DTG), which shook the market as its shares rose nearly 430%, and Air Transport Services Group (NASDAQ:ATSG), which took flight and tripled in value. Let's examine why investors believe that some of the laggards noted above won't jump from the frying pan into the fire.

Some spring in its step
It's understandable that CAPS All-Star member Ibeatmykids equates Western Union with the Pony Express, but there may still be plenty of reasons to own the company. This All-Star writes:

This one doesn't have what it takes. It was a good idea a while ago but now anyone can "wire" money. There is this new thing called the Internet and you can do all sorts of stuff on there including banking. Who needs [Western Union]? If i were to invest in this I might was well invest in horse carried postal service or the telegraph. These are things of the past.

A large majority of the money-transfer business involves expatriates sending money back home. Whether in the Europe, Middle East, Africa, and South Asia regions (EMEASA accounts for 45% of Western Union's second-quarter revenue) or the Americas (another 32%), money transfers are an outbound business that is definitely affected by a depressed economy and rising unemployment. 

Moneygram International, for example, notes that transfers involving the U.S., Mexico, and Spain -- some of its largest segments -- have been reeling from the demise of the manufacturing and construction sectors, since these industries employ a large proportion of migrant labor. Less work means fewer people wiring money abroad. Similarly, Western Union operations in Mexico saw a 20% second-quarter decline in revenue, on a 15% drop in transactions. Mexico typically represents 6% of Western Union's sales.

Despite some gloomy numbers, a key takeaway is that many of these transactions are not discretionary remittances. Customers send money so that loved ones can buy food and shelter. In addition, many customers still do not have access to computers or the technology necessary to wire money, although the company's Internet initiative, WesternUnion.com, did grow its transactions by 20% this past quarter.

In addition to these difficulties, Western Union faces other challenges from its competitors. Moneygram offers its services at CVS and many Walmart stores. And Coinstar, with its ubiquitous big green coin counting machines and Redbox video rental kiosks, is contemplating how best to leverage its 2006 acquisition of Travelex Money Transfers, though selling it off remains high on the list.

As economic recovery returns, though, I would expect to see Western Union's business revive in tandem.

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.