3 Stocks Ready to Roar

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, even in this market, the analysts are beating the market by 14 percentage points 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 a run up of 15% 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 a handful of stocks when I ran it and included these recent winners:

Source: Motley Fool CAPS Screener; price return from July 25 close to Oct. 24 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 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 47 the screen returned that are still attractively priced, but that investors think are ready to run today!

Source: Motley Fool CAPS Screener; price return from Sept. 26 close to Oct. 24 close.

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

Xerox
It's probably safe to say that in tough economic times, a high-end color copier is probably low on a company's priority list. That probably helps explain Xerox's earnings that showed revenues creeping up 2%, while profits came in a penny above analyst expectations. But CAPS member foolishgoth sees the copy maker's turnaround working out in the long-run.

I think this company is a long term outperform. They have been beaten down by the market (like everyone) to a very attractive price....

They are going to change their business strategy, they are changing what they do, for the better. This wont be the same Xerox that made copies in 5-10 years. If they can capatilize on their history of innovation that would be excellent long term, but in the short term I think they will focus on the office support business units.

Travelers Companies
Hello, Dolly! And Gustav, and Ike. Though not as bad as the trio of hurricanes that struck back in 2005, the three recent hurricanes wrought enough havoc to doom Travelers Companies earnings this quarter with an 82% drop in profits. Earlier this summer, CAPS All-Star member hey4ndr3w presaged the coming maelstrom:

U.S. bad weather has already cost property insurers more than $5B this quarter - equal to about 3/4 of 2007's total catastrophe claims. A lull in insurance pricing continues to reduce the companies premiums, which could leave them in an even worse situation by the time the storm season subsides. 40% of insurers reported losses and expenses ate up virtually all their premium in Q1.

Unum Group
Employee benefits provider Unum Group had side-stepped some of the concerns that battered other insurers like UnitedHealth (NYSE:UNH) and WellPoint (NYSE:WLP) up until October. Since the beginning of the month the insurer has lost about 40% of its value. Unum Group says it expects to report profits in line with Wall Street's expectations, and CAPS member PrincetonAl thinks the low PE is a sign of the rebound to come.

While they have a correlation with unemployment in terms of insurable rolls in U.S., don't think that the current movement is in line with the underlying fundamentals like a lot of other insurers. With a single digit P/E, seems like some rebound is possible here.

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. 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.