Can IBM & Western Digital 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 62 stocks listed under "computer hardware" in the CAPS' screener, of which more than a handful carries well-respected four- and five-star ratings. Those accolades mean our 180,000 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:

Source: Motley Fool CAPS.

Let's take a closer look at these two companies.

Drying out
According to the market researchers at Gartner, IT spending growth is likely to increase only 3.7% in 2012, down from its previous forecast of 4.6%, with all four major technology sectors -- computing hardware, enterprise software, IT services, and telecom equipment and services -- growing slower than previously forecast. As the financial crisis in Europe worsens and the lingering impact of Thailand's floods continues to swamp tech markets, it casts the sector in a particularly dark spot.

Obviously not all companies will be affected the same. As we've seen with Western Digital and Seagate Technologies (Nasdaq: STX), they've profited handsomely from the shortages the floodwaters created. IBM, on the other hand, is laying off thousands as slower spending impinges on its shift from selling low-margin commodity hardware products to high-value business analytics services.

Even so, it remained the largest seller of servers, even though revenues dropped 10% as a result of the flood, outperforming No. 2 Hewlett-Packard (NYSE: HPQ), which saw revenues fall 16%. A surprising winner was Dell, which was the only server supplier reporting revenue growth, and saw its market share rise to almost 15%, still behind the third of the market owned by IBM.

Many CAPS members like toaoyoda credit the management skills of former CEO Sam Palmisano with creating the new corporate culture that allows IBM to lead from the front:

This stock has surmounted the Big Company Complacency period (thanks to Lew Gerstner) and embarked on exploitation of its natural advantages (culture of research combined with emphasis on marketing thanks to Sam Palmisano). Better than GE its culture provides a successful succession plan so that future management promises to be as wise and flexible as the (post-Opel) era has been.

Now we've been waiting for Western Digital to close on the Hitachi drive acquisition, but Asian regulatory concerns forced it to agree to sell some assets to Toshiba to get over that hurdle (it will buy some drive assets from them at the same time). With its goal of getting back to pre-flood levels set for the end of the third quarter this year, and already bringing back online its head slider facility (head sliders let a drive's head maintain a uniform height above the disk), it ready for the next phase of growth.

The stock trades at just six times future earnings, a premium to Seagate, but well below that of OCZ Technology (Nasdaq: OCZ), which is trying to capitalize on the floods with its rival solid-state drives. Yet one could say that after the initial fears subsided with the floods, all drive makers have seen the tides raise their boats. Seagate has tripled in value since October, OCZ has doubled, and Western is up 77%. Only STEC remains severely depressed.

All but one of the nearly two dozen analysts covering Western Digital think it will continue outperforming the broad indexes, and 95% of the 1,344 CAPS members rating the drive maker agree. Add Western to the Fool's free portfolio tracker, and let us know on the Western Digital CAPS page or in the comments section below if you agree it will drive even further ahead.

The ball's in your court
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