3 Stocks Springing Back

With all the volatility in the markets today, there's no shortage of market seers trying 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 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 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 filter out $100 million-plus companies whose stock price has appreciated by at least 15% in the past 13 weeks even while they remain less than 40% above their 52-week low.

Source: Motley Fool CAPS. Results from Oct. 16 through Jan. 11.

The bottom case
Onyx Pharmaceuticals has many tricks up its sleeve -- including approved drug Nexavar and a growing pipeline -- so it's no wonder many investors believe it may be looking nowhere but up today. Nexavar is approved for treating liver and kidney cancer, joining other kidney cancer treatments from big boys Pfizer (NYSE:PFE) and Novartis (NYSE:NVS), and generated strong sales for the third quarter, up 27% over last year. With a large amount of liver cancer patients in China, Onyx Pharmaceuticals also sees a large opportunity to increase sales there if the government begins to reimburse for cancer drugs. And it's seeking more applications for Nexavar for different types of cancer, like trials involving breast cancer -- a market drawing many others like ImmunoGen (NASDAQ:IMGN).

Some investors also think Onyx Pharmaceuticals struck gold with its acquisition of privately held Proteolix, which added blood cancer drug candidate carfilzomib to its pipeline. That has brought good results in trials so far, a phase 3 trial in combination with Celgene's (NASDAQ:CELG) Revlimid is expected to start this year, and if things go well, there could be an accelerated U.S. approval in 2011.

Or dead cat in disguise?
Even though Onyx Pharmaceuticals is packed with potential, having just one drug on the market and an active pipeline doesn't guarantee profits and could make for some volatility in its share price. Some investors think shares could easily test lows again. Markets react to new information on additional trials that could substantially boost the company's revenue, but also could disappoint investors with sharp drops in value. Some investors liken its volatile share-price movements to companies like Seattle Genetics (NASDAQ:SGEN), as opposed to more stable, larger drug companies like Johnson & Johnson. And being in the business of high-price cancer drugs has its drawbacks while insurers and state health-care systems worldwide try to cut costs. Nexavar recently faced opposition in the U.K. because of its cost, a force other cancer drugmakers like Dendreon (NASDAQ:DNDN) may have to reckon with as well.

What's your call?
Overall, 90.4% of the 457 CAPS members rating Onyx Pharmaceuticals see it outperforming the broader market. Investing in small biotech companies just isn't my cup of tea, and I have no problem passing on the massive potential of some companies to avoid the volatility of investments in the sector.

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.