There are plenty of strategies for picking stock winners: low P/E stocks, companies selling at a discount to their future cash flows, and more. At the small-cap stock-picking service Motley Fool Hidden Gems, the analysts are able to stay ahead of the market by finding undervalued stocks that the market and investors have ignored.
Yet what if we could find a way to whittle down our list of prospects beforehand, finding those whose engines are just getting warmed up?
Using the investor-intelligence database of Motley Fool CAPS, I screened for stocks that were marked up by investors before their stocks began to move up over the past three months in a market that has headed south in a dramatic fashion. My screen returned 68 stocks when I ran it and included these recent winners:
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Stock
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CAPS Rating 10/7/08
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CAPS Rating 1/7/09
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Trailing 13-Week Performance
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CB Richard Ellis (NYSE: CBG )
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**
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***
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1%%
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Health Net (NYSE: HNT )
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**
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***
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6.9%
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Huntsman (NYSE: HUN )
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**
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****
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11.8%
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Source: Motley Fool CAPS Screener; trailing performance from Jan. 9 to Apr. 6.
Health Net, in fact, was previously picked as a stock ready to run back in December, and has lived up to that promise so far. So while this screen might tell us which stocks we should have looked at three months ago, what we want are the stocks that we ought to be looking at today. I went back to the screener and looked for stocks that were just bumped up to three stars or better, sporting valuations lower than the market's average, and whose prices haven't moved up over the past month by more than 10%.
Here are three stocks out of the 14 the screen returned that are still attractively priced, but which investors think are ready to run today!
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Stock
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CAPS Rating 1/7/09
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CAPS Rating 4/6/09
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Trailing
4-Week Performance
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P/E Ratio
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Alberto-Culver (NYSE: ACV )
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**
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***
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(0.8%)
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9.9
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BB&T (NYSE: BBT )
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**
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***
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0.5%
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6.4
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Psychiatric Solutions (Nasdaq: PSYS )
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**
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***
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(4.9%)
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7.8
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Source: Motley Fool CAPS Screener; price return from Mar. 13 to Apr. 6.
Though the results you get may be different, since the data is dynamically updated in real time, you can run your own version of this screen. But let's take a look at why investors might think these companies will go on to beat the market.
Alberto-Culver
Discretionary spending may have been hurt by the recession, but hair care and beauty supplies seemingly never go out of fashion. It's a competitive market where rival Procter & Gamble (NYSE: PG ) , with a $144 billion market cap, dwarfs Alberto-Culver at just $2.2 billion. CAPS member TheDoughMaker sees some technical reasons why there might be less bounce than expected.
[Alberto-Culver]–had all the makings of a good short. It came with a strong surge in volume, negative BOP, and had a price pattern that is rolling over with price failing right at a key resistance point with a close near or at the LOD.
BB&T
By avoiding much of the turmoil upsetting the mortgage business, BB&T may have set itself up as one of the coming decade's best investments. That also happens to be why top-rated CAPS All-Star TotoMMB thinks it will weather the storm better than its rivals.
A well-run regional bank. Avoided much of the financial wizardry that has hammered other financial stocks. Also, one of the few that hasn't cut or eliminated dividends (in fact, they raised it last time out). After today's monsterous rally, maybe the bad times are behind the banking sector, especially this best of breed company. Even if they aren't, this company will weather the storm much better. I'll continue to own this long in the real world.
Psychiatric Solutions
CAPS All-Star rickdoom finds the market's recent reaction to Psychiatric Solutions' quarterly report a bit manic, and thinks panic-driven sellers are ready for the rubber room.
Missed earnings and lowered forward guidance, but in the whole scheme of things it's really wasn't all that bad. The street seems to have overreacted on this one, and I see no compelling reason to panic-sell PSYS here. Expecting a partial but meaningful recovery from today's lows in the short-term.
Three for free
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 the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think are starting to rev their engines.
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