3 Stocks Ready to Roar

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There are plenty of strategies for picking stock winners: You can look for 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 able to stay ahead of the market by finding undervalued stocks that the market and investors have ignored.

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 moved strongly higher before essentially trading sideways. My screen returned 154 stocks when I ran it, no doubt reflecting the market's recovery, and included these recent winners:

Stock	CAPS Rating (out of 5) 2/25/09	CAPS Rating (out of 5) 5/25/09	Trailing- 13-Week Performance
Xerox (NYSE: XRX)	**	***	24.6%
Valmont Industries (NYSE: VMI)	**	***	37.3%
LM Ericsson (Nasdaq: ERIC)	**	***	11.8%

Source: Motley Fool CAPS Screener; trailing performance from May 22 to Aug. 21.

Valmont Industries, in fact, was previously picked as a stock ready to run. 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. So 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 hadn't moved up over the past month by more than 10%.

Here are three stocks out of the 32 the screen returned that are still attractively priced, but which investors think are ready to run today!

Stock	CAPS Rating (out of 5) 5/21/09	CAPS Rating (out of 5) 8/21/09	Trailing- 4-Week Performance	P/E Ratio
BigBand Networks (Nasdaq: BBND)	**	***	(25.5%)	17.5
Walter Investment Management (NYSE: WAC)	**	*****	5.1%	0.1
Black Hills (NYSE: BKH)	**	***	4.5%	8.8

Source: Motley Fool CAPS Screener; price return from July 24 to Aug. 21.

Though the results you get may be different, since the data is updated in real time, you can run your own version of this screen. Let's take a look at why investors might think these companies will go on to beat the market.

BigBand Networks
Despite beating Wall Street's adjusted earnings expectations for the second quarter, digital video gear vendor BigBand Networks got a fuzzy reception from the market when it provided tepid forward guidance on lackluster bookings. But with more switched digital video (SDV) offerings to be deployed after the FCC dropped fines against cable operators that had used them, BigBand Networks could see its fortunes reversed.

Switched digital allows cable operators to free up bandwidth by sending to viewers just the signals of programs being watched rather than the entire lineup of channels. The freed-up space is then used to deliver HDTV programming. BigBand is the top provider of SDV in the U.S.

Walter Investment Management
Spun off by Walter Energy (NYSE: WLT) earlier this year, Walter Investment Management converted to a real estate investment trust (REIT) and enjoyed a noncash tax benefit from the move, giving its first quarterly earnings report as a stand-alone company a boost of $81 million. Excluding the benefit, earnings would have been lower than the year-ago period, but CAPS member tmd6966 pointed out in May that Walter could contain an earnings dynamo:

The only revenue this company has at present is the yield from the mortgages, but with all the gov't programs, and the mortgage servicing and insurance divisions, there could be substantial earnings power hidden by all the recent machinations required to merge the companies. Not much info available since the merger was completed only a month ago, so you really need to read every SEC filing. Could be a real sleeper.

Black Hills
March marked the 39th consecutive year that utility operator Black Hills raised its dividend. Lower energy prices affected results, and while natural gas prices have plummeted to a seven-year low, now that oil is well above $70 a barrel again, Black Hills could end up being well in the black. CAPS member glacierhaven noted the impact of energy prices on Black Hills back in May:

Look at the recent earnings report. This Utility is on the way up with good news on gas utility purchase, electricity sales and completing of the sale of its 7 individual power producers. The icing on the cake is that natural gas prices are up 15 % in the last week and Oil prices are up even higher. All of this goes to BKH's [bottom] line.

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?