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 investment 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 138 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 Oct. 30 to Jan. 29.

Home Depot, in fact, was previously picked as a stock ready to run just this past November. 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 51 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:

Source: Motley Fool CAPS Screener; price return from Dec. 31 to Jan. 29.

You can run your own version of this screen over on CAPS; 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.

Dollar Tree
The dollar-store value proposition has become firmly cemented during the Great Recession, with Dollar Tree and its numerous rivals Family Dollar (NYSE:FDO), Dollar General, and even Big Lots ringing up plenty of pennies. But Dollar Tree carries a premium valuation, too, even if its growth prospects are estimated to be higher than some of the competition. Still, about 90% of the more than 340 CAPS members rating the dollar leader believe it will outperform the market. Ring up your opinion on the Dollar Tree CAPS page, and tell us whether you think money will grow on this tree.

Everest Re Group
Highly rated CAPS All-Star member mrindependent believes that reinsurance underwriter Everest Re will follow strong performance in 2009 with an equally superb effort this year:

Everest Re Group, LTD currently qualifies for my Stable Dividends screen, which has outperformed the S&P 500 by 16.6% per year since January 1, 2000. After posting a small loss in 2008, Everest Re is expected to finish 2009 with $12.56 per share in earnings and analysts expect the company to earn $11.96 per share in 2010. The company's balance sheet is sound. Despite all of this positive news, Everest Re is trading below its historical valuations. Current p/bv: 0.85. Five year median p/bv: 1.17. CAPS 3, Stockscouter 9.

JPMorgan Chase
CAPS investor BankingHard has a similarly positive view on JPMorgan Chase, assuming that an improving U.S. economy will allow the banking giant to become more stable and financially sound:

Credit quality trends are beginning to improve as any downward movement in credit losses will add to the bottom line. Also [JPMorgan Chase] continues to build capital and is moving closer to dividend hikes in mid-2010. Considering [JPMorgan’s] Tier 1 common capital ratio of 8.8%, which is robust, I think that it is increasing likely they will restore the dividend sometime in the near future. CEO Dimon emphasized continued uncertainty regarding regulatory capital guidance and the trajectory of the U.S. economy as primary reasons for continued capital caution. Once these matters are clearer [the company] will be able to begins releasing reserves into profits.

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

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. 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.