Can These Stocks Bounce Higher?

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.          

There are 99 stocks listed under "materials & construction" in the CAPS' screener, but more than a handful of them carry well-respected four- and five-star ratings. Those accolades mean our 170,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:

Sources: Motley Fool CAPS, Yahoo! Finance.

The markets have been on a roller-coaster ride lately, but with the S&P 500 up 23% over last year and the construction industry pretty much still moribund, it's not so surprising to learn the CAPS materials and construction stocks have done worse, rising just 11% in that same time span. So let's take a closer look at why investors think some of these other companies won't be jumping from the frying pan into the fire now that the markets are roiled again.

Building the future
Even though oil prices have dropped back below $100 a barrel as concerns about the economy rise anew, it should seemingly remain a lucrative opportunity for engineering and construction firms like Chicago Bridge & Iron, McDermott, and Foster Wheeler (Nasdaq: FWLT). While CB&I and McDermott have seen their shares soar over the past year, even Foster Wheeler has managed to jump 32% over the same period. Oil and gas exploration firms wanting to cash in on rising prices are hiring these companies to design and build the infrastructure.

CB&I just won a contract for Russia's Kazakhstan Petrochemical Industries to build a propane dehydrogenation unit and a polypropylene plant and has also secured additional contracts worth $50 million to construct oil storage tanks up in Canada's oil sands. For its part, McDermott was awarded a new contract with Mexico's oil giant, Pemex, and Foster Wheeler has been active in Thailand.

Yet profits remain difficult to come by for the companies. Fluor saw profits in the oil and gas segment drop by nearly a third to $62 million, Foster Wheeler's profits were down 68%, and Chicago Bridge & Iron's results, while up 20% from last year, came in substantially below analyst expectations. Many of the companies in the space have peeled back from their recent highs, with CB&I shares down 11% and McDermott down 20%.

Yet investors don't seem too concerned. Almost 98% of the members rating both CB&I and McDermott believe they will continue outperforming the broad market averages. You can add CB&I to your watchlist then head over to the Chicago Bridge & Iron CAPS page and let us know if it can still build a future for itself.

The Fool's free portfolio tracker will allow you to stay up on how McDermott progresses by aggregating all the news and analysis for you in one place.

No foundation underfoot
Considering how bad the housing market remains, you're not going to find many U.S. homebuilders on the list of best performers. Housing starts dropped more than 10% in April and worse for hopes of any recovery, permits were also down. Compared with April 2010, residential construction was down 24%. Ouch!

So the fact that Hovnanian (NYSE: HOV) is down 60% and KB Home (NYSE: KBH) is down 27% over the last year isn't surprising. What does surprise me is to find that Toll Brothers (NYSE: TOL) is off only 2% and DR Horton is down 7%. There's little reason for either to be doing as well as that, suggesting there might be a tumble or two in their future.

But just because the U.S. housing market is dead doesn't mean it is everywhere. Brazil, for example, is witnessing a housing boom similar to the bubble the U.S. had a few years ago with prices soaring beyond the reach of many. That's why the Brazilian government is setting aside $47 billion in loans for developers to build affordable housing. It also builds up hope that developer Gafisa will recover, at least before the market implodes, if it does. The U.S. is proof that it's likely to happen and Japan before that. China is simply a bubble waiting to burst if there ever was one.

I had picked Gafisa a few years ago on CAPS to profit from the boom that was developing, but after hitting recent highs in October, it now trades 40% below those levels. It might be time to re-up on the stock. While the few Wall Street analysts that cover the Brazilian builder think it will beat the indexes, CAPS All-Stars are a little more circumspect with just 87% thinking it can climb so high. Yet that looks pretty good compared with the fact that by more than a 3-2 margin, All-Stars are looking for Hovnanian to fail.

But you can build a case for growth on the Gafisa CAPS page.

The ball's in your court
There are many factors that 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.