3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners. At the small-cap stock picking service Motley Fool Hidden Gems, the analysts are beating the market by 20 percentage points by finding undervalued stocks that the market and investors have ignored.

What if we could whittle down our list of prospective winners 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 a run-up of 20% or more over the past three months. That underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned 29 stocks when I ran it, including these recent winners:

Source: Motley Fool CAPS Screener; price return from June 27 close to Sept. 23 close.

While that tells us which stocks we perhaps should have looked at three months ago, what we want are the stocks that we ought to be looking at today. So I went back to the screener and looked for stocks that just got bumped up to three stars or better, sport valuations lower than the market's average, and whose price hasn't moved up over the past month by more than 10%.

Here are three stocks out of the 66 the screen returned that are still attractively priced, but which investors think are ready to run today!

Source: Motley Fool CAPS Screener; price return from Aug. 29 close to Sept. 23 close.

Let's take a look at why investors might think some of these companies will go on to beat the market.

Ashland
Valvoline oil maker Ashland is moving forward with its acquisition of Hercules, which analysts feel is a bargain considering what Dow Chemical (NYSE: DOW) had offered for Rohm & Haas. Just last week, CAPS member FGunawan agreed that investors need to re-evaluate their position on Ashland once the merger goes through:

Ashland is going to acquire Hercules (HPC), a specialty chemical company, in a deal announced back in July. Since the announcement, shares have been languishing, underperforming even S&P's slide. The shares now stand at a P/E of around 10. Once Hercules is successfully integrated within the company, investors should reassess the value of this stock. That is when the stock is going to outperform S&P.

Compania Cervecerias Unidas
Much as Anheuser-Busch has a lock on beer distribution dominance in North America, CCU is a huge distributor in Chile and Argentina, with brands including PepsiCo, Dr Pepper Snapple Group, Nestle, Heineken, and Corona. It also has a joint venture with Anheuser-Busch. CAPS member rugbyquist suggested in June that CCU's dominance will be enhanced when InBev completes the Bud merger. "If the buyout of Bud goes through they will be tied into the company with over 52% of the market and alot of room for growth."

Time Warner
It's been a long time since AOL was a sexy Internet name, but when Time Warner hinted at spinning the property off earlier this year (or just dropping it altogether) it received some renewed cachet. Interest is heightened again these days with word that Yahoo! (Nasdaq: YHOO) might once again be in play and might be interested in the property. CAPS member sba2001 sees a bull on the horizon: "About as cheap as you're gonna get. Sum of the parts is a lot more than the whole - after the spin-off of TWC and AOL is complete you're going to be left with a bull with room to run".

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 are making -- all from a stock's CAPS page. Why not 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.