3 Stocks Springing Back

With all the volatility in the markets today, there's no shortage of market seers attempting to call a bottom. 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 140,000-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 5,300 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 find $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 40% below their 52-week high. If you'd like, run this screen yourself, just keep in mind that results may change as the market does.

Source: Motley Fool CAPS.
^Price return Aug. 21 through Nov. 16.

The bottom case
Since the implosion of its stock in 2008, investors have been looking for the bottom on DryShips, and many contend that the time has finally come. With a forward earnings multiple in the single digits, DryShips has some pent-up potential, with many stocks in the dry bulk sector still sitting at beaten-down levels, like Genco Shipping & Trading (NYSE:GNK) and Paragon Shipping (NASDAQ:PRGN).

China's economy has shown positive economic signs lately, which has helped push the Baltic Dry Index higher and provided some upside to DryShips vessels that were relying on spot-market rates in the third quarter. In addition to China and India, DryShips has seen signs of recovery in other countries. The company beat analyst expectations in the third quarter and showed some strength in its drilling business, which could see a spinoff early next year. It's obtained waivers on all of its outstanding credit facilities and has its dry bulk fleet operating near capacity and fully booked through 2010.

Or dead cat in disguise?
But even though DryShips looks to be gaining firmer footing, the company still poses a lot of risk and many CAPS members see a safer bet in a competitor like Diana Shipping (NYSE:DSX). DryShips recently reported third-quarter earnings that came in at a steep drop from last year, with revenue down 30%, and some investors still express significant concerns for DryShips' large debt load, even as the company recently announced that it will pile on more with a $300 million note offering.

The industry overall still faces oversupply issues and companies like Navios Maritime (NYSE:NM) are still expanding their fleets as well, which doesn't add wind to DryShips' sails. The scary story out there is that the global dry bulk fleet is expected to grow for several more years, which will pressure the dayrates that tie directly into shippers' top and bottom lines. And DryShips has yet to win contracts for its ultra-deepwater drilling rigs under construction, which it will need to obtain before landing financing.

What's your call?
Overall, 87% of the 3,068 CAPS members rating DryShips are bullish and see it outperforming the broader market. For my part, DryShips' operations and management has always scared me. No matter how cheap the stocks gets, I have trouble putting faith (and dollars) behind a stock like DryShips.

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 5,300 stocks that our 140,000-plus members have covered.