3 Stocks Springing Back

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 among languishing companies.

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 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 is simply priming 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 while staying at least 35% below their 52-week high. These stocks also have both a positive return on equity and earnings per share over the past 12 months, limiting the results to companies that deliver results regardless of stock gyrations. 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 change from Aug. 7 through Nov. 2.

The bottom case
After Huron Consulting Group said it would restate earnings, sending shares down roughly 70% in early August, its worst days could be behind it. Some CAPS members believe the market's reaction was overblown and expect the business to recover -- but not before they pick up some of the beaten-down shares. The stock has regained some of its value in the past few months as the company scrambled to contain the damage from an accounting gaffe that, it says, had a minimal effect on its business. It's moving forward with major projects like a $46 million chunk of an $81 million university payroll project it hired Accenture (NYSE: ACN) to help with and continues to win new business. Huron Consulting Group has also significantly grown its presence in the health-care industry in recent years, becoming one of the top management consulting companies. And it's expanding with a couple of new document review centers on the East Coast to meet increasing demand from its legal and corporate clients in the region.

Or dead cat in disguise?
But while Huron Consulting Group may look primed for a rebound, a few investors note that the negative effects of the accounting mess could linger. With the Galleon Group scandal entangling executives and employees from major companies like IBM (NYSE: IBM) and Moody's (NYSE: MCO), and Bank of America (NYSE: BAC), AIG (NYSE: AIG), and Citigroup (NYSE: C) still stumbling over risky assets, many investors are cautious. Huron Consulting Group restated more than three years of financial results, which slashed its profits. It still faces lawsuits, Securities and Exchange Commission  scrutiny, goodwill writedowns that are expected to affect third-quarter and full-year results, and significantly reduced borrowing capacity.

What's your call?
Overall, 92% of the 283 CAPS members rating Huron Consulting Group see it outperforming the broader market. For my part, I'd rather invest in businesses and management teams that have fewer blemishes -- even if it means passing up on potentially high returns.

© 2009 UCLICK, L.L.C.