3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners, from finding low P/E stocks to seeking companies selling at a discount to their future cash flows. At the small-cap stock-picking service Motley Fool Hidden Gems, even in this market, the analysts are able to stay ahead of the pack by finding undervalued stocks that Wall Street and investors have ignored.

But what if we could whittle down our list of prospects beforehand, to find those whose engines are just getting warmed up?

Using our investor-intelligence database at Motley Fool CAPS, I screened for stocks that were marked up by investors before their share prices rose over the past three months. My screen returned 106 stocks when I ran it, no doubt reflecting the market's continued recovery, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from Sept. 4 to Dec. 2. CAPS rating = out of five stars.

ProLogis, in fact, was picked at this time last year as a stock ready to run. But while this screen might tell us which stocks we should have looked at three months ago, we'd rather find 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, sport valuations lower than the market's average, and haven't appreciated by more than 10% in the past month.

Of the 48 stocks the screen returned, here are three that are still attractively priced, and which investors think are ready to run today:

Source: Motley Fool CAPS Screener; price return from Nov. 6 to Dec. 2. CAPS rating = out of five stars.

You can run your own version of this screen; just remember that the data's dynamically updated in real time, so your results may vary. That said, let's examine why investors might think these companies will go on to beat the market.

MFA Financial
Unlike Annaly Capital (NYSE:NLY), which remains active in agency mortgage-backed securities, mortgage REIT MFA Financial has chosen to diversify away from them into nonagency MBSes, with the goal of maintaining double-digit gains in returns on equity. CAPS member Bawls prefers to buy on the dips in share price while enjoying MFA's dividend. "Nice drop today, making this dividend paying stock even more attractive..."

Safeguard Scientifics
High-tech and life-science venture investor Safeguard Scientifics continues to fly under the radar of professional analysts, but is starting to pick up a following on CAPS, where 90% of the 67 members following the company have rated it to outperform the market.

Towne Bank
Towne Bank is another stealth investment that's growing investor support. That could be because rather than trying to grow beyond its means, Towne Bank chooses to focus its attention in its own neighborhood of Hampton Roads, Va. That small-town look has served it well, as second-quarter earnings grew nearly 5%, with deposits increasing by 20%, indicating it's serving its customers well. It also paid out its 12th consecutive dividend.

That kind of performance is starting to attract CAPS members. But with only a handful weighing in, your perspective is needed on Towne Bank's CAPS page.

Three for free
Are these companies still good values and ready to make their move? I'm heading over to CAPS to mark them to outperform the broader averages. Join me there, or let us know in the comments section below what you think?

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.