3 Stocks Ready to Roar

There are plenty of strategies for picking winning investments, 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 111 stocks when I ran it, no doubt reflecting the market's continued recovery during that time, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from Feb. 19 to May 17.

I previously picked Par Pharmaceuticals as a stock ready to run just this past March. 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 60 stocks the screen returned, here are three that remain attractively priced, but which investors think are ready to run today:

Source: Motley Fool CAPS Screener; price return from Apr 23 to May 17.

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.

MasterCard
As the government tries to win points with consumers by reducing fees and costs associated with the plastic in our pockets, the Law of Unintended Consequences may be poised to rear its ugly head. By limiting the fees that MasterCard and Visa (NYSE: V) can charge on debit card transactions, Congress could ultimately limit the number of cards made available.

CAPS member arnieshal still believes MasterCard's revenue streams will stay consistent:

I like MA because of its predictable revenue stream, its global reach, and the difficulty of competitors making inroads into this market sector. The biggest shortcoming is exposure to government regulation that periodically reviews and controls credit card fees.

China Yuchai
According to a survey conducted by global management consulting firm A.T. Kearney, roughly 75% of auto suppliers expect double-digit growth in China. That bodes well for engine maker China Yuchai and even U.S. based Johnson Controls (NYSE: JCI), which has 23 joint ventures and 40 manufacturing facilities in China, and just made a bid for some of bankrupt Visteon's business.

Highly rated CAPS All-Star jmclr says China Yuchai's significant volume growth could push it higher:

The total number of diesel engines sold by the Company's main operating subsidiary, Guangxi Yuchai Machinery Company Limited ("GYMCL"), during the first quarter of 2010 was 195,017 units compared with 121,749 units in the previous year, a 60% unit sales volume increase. The stronger growth in revenue was primarily due to the shift of product mix towards heavy and medium duty engines.

Integrated Silicon Solution
Chipmaker Integrated Silicon Solution is heating up as a result of rising DRAM prices, as PC makers like Dell (Nasdaq: DELL) buy up memory in anticipation of a shortage. All-Star TSIF says that ISS's financial position makes it particularly attractive in light of the share meltdown:

Total Revenue has increased sharply, and steadily the last four quarters, taking Integrated Silicon Solutions from a quarterly loss to two strong quarterly wins, with more upside predicted. Nice mix of large investors and 18% insider ownership. Cash flow solid. Inventory cut in half yoy. While Integrated Silicon Solutions has been pushing new 5 year highs, a few more quarters of increased growth and this company should be well positioned to reward patient investors.

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 in the comments section below whether you think these or any other stocks are starting to rev their engines.