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 145,000-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 20% in the past 13 weeks even while they remain at least 35% 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.
^ Sept. 18 through Dec. 14.

The bottom case
There are several fundamental reasons why Headwaters may be looking nowhere but up. The company saw a sequential increase in fourth-quarter revenue, and expects an increase in construction projects in 2010 as more construction stimulus money starts to kick in. The bump in infrastructure projects could help drive demand for its fly ash as well as benefit rebounding cement makers like Cemex (NYSE:CX).

Given the global green focus, many CAPS members see the environmental benefits of using fly ash in building materials as a big plus. They also see potential for Headwaters' clean coal technologies. It's been able to cut costs and restructure businesses to work through the sales pressure in fiscal 2009 as higher fourth-quarter gross margins were seen in its Heavy Construction Materials and Light Building Products segments. The company has also been able to restructure some debt, which alleviates covenant concerns and provides additional liquidity.        

Or dead cat in disguise?
Even though Headwaters has some positive momentum, there are still counteracting forces to consider. The company anticipates revenues to be flat in 2010 compared with 2009, and expects any improvement in results to come mostly from operational improvement and cost reductions. The lack of sales growth has some investors hesitant to jump in just yet as these types of improvements can only go so far for so long.

While coal prices, and producers like Arch Coal (NASDAQ:ACI) and Peabody Energy (NYSE:BTU), are eyeing signs of recovery, Headwaters is still feeling the effect of weak new-housing and home improvement markets that are pressuring KB Home (NYSE:KBH) and home improvement retailers like Home Depot (NYSE:HD) and Lowe's (NYSE:LOW). And since the company's business is highly seasonal, investors may be waiting for a couple of quarters to gauge progress, as Headwaters expects all of its operating income to come in its fiscal third and fourth quarters.    

What's your call?
Overall, 93% of the 844 CAPS members rating Headwaters are bullish and see it outperforming the broader market. For my part, I see Headwaters as an attractive long-term play that should reward investors when the world eventually gets beyond the current economic contraction.

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 145,000-plus members have covered.