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, the analysts are beating this challenging market by 10 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 prices began to move up -- over the past three months, and in a market that has headed south in dramatic fashion. That underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned 13 stocks when I ran it and included these recent winners:

Stock

CAPS Rating April 30

CAPS Rating July 30

Trailing

13-week Price Change

Family Dollar (NYSE: FDO  )

**

***

12.3%

Indevus Pharmaceuticals (Nasdaq: IDEV  )

**

****

33.7%

National Penn Bancshares

*

***

18.1%

Source: Motley Fool CAPS Screener; price return from Aug. 1 close to Oct. 30 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 had just bumped up to three stars or better, sport valuations lower than the market's average, and whose price hasn't moved up by more than 10% over the past month.

Here are three stocks out of the 47 the screen returned that are still attractively priced, but which, thanks to the upgrade in CAPS rating, investors think are ready to run today.

Stock

CAPS Rating July 30

CAPS Rating Oct. 30

Trailing

4-Week Performance

P/E Ratio

National Bankshares (Nasdaq: NKSH  )

**

***

(11.4%)

8.8

Omnicom (NYSE: OMC  )

**

***

(20.8%)

8.7

Stantec (NYSE: STN  )

*

*****

(36.5%)

11.0

Source: Motley Fool CAPS Screener; price return from Oct. 3 close to Oct. 30 close.

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

National Bankshares
Unlike some regional banks such as Umpqua Holdings (Nasdaq: UMPQ  ) in the Northwest, National Bankshares probably flies under the radar of most analysts let alone most investors because of the niche market it serves: It operates 26 branches in southwestern Virginia. Yet according to one analyst who does cover it, it has strong investment returns compared with its peers and looks to be well-capitalized. CAPS member phonixed gave a well-reasoned pitch for the company back in July, which you can read in its entirety on National Bankshares' CAPS page.

It just looks like this stock is an anonymous, but powerful name in the sea of banks on the NASDAQ, but really makes one consider that, perhaps, when it comes to some of these regional banks, they may just want to look closer to home.

Omnicom
Despite the economic upheaval that's wreaking havoc with ad spending around the globe, CAPS member 6and8 sees the market ignoring the world's largest advertising agency, Omnicom.

Market not giving credit to [Omnicom's] ability to defend its digital advertising business (vs. [Yahoo!], [Google (Nasdaq: GOOG  ) ]).

Stantec
Engineering company Stantec was able to report strong operating performance before certain charges related to goodwill and other intangible assets, a situation CAPS player Ajcoom01 might attribute to its niche specialization.

[Specializes] in Green building technology, therefore demand for the services they provide will increase for the next several years. In addition the company has made several great acquisitions in engineering firms over the last couple years and will continue to do so.

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?

Umpqua Holdings is a Motley Fool Stock Advisor pick. Google is a Rule Breakers choice. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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