3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners, from finding low price-to-earnings ratio 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 just 158 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:

Source: Motley Fool CAPS Screener. Trailing performance from July 2 to Sept. 30. CAPS rating is one star (lowest) to five stars (highest).

Cytokinetics was picked as a stock ready to run in January, and represented a period when the market rose by almost 12%. This screen might tell us which stocks we should have looked at three months ago, but we'd rather find the stocks 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, sport valuations lower than the market's average, and haven't appreciated by more than 10% in the past month.

Of the 57 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 Sept. 3 to Sept. 30. CAPS rating is one star (lowest) to five stars (highest).

You can run your own version of this screen over on CAPS; just remember that the data are 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.

BioScrip
Despite missing analyst estimates, BioScrip saw solid growth in both pharmacy services and infusion and home-health services. In particular, an acquisition made earlier this year helped double revenues in the infusion segment and should have laid a solid foundation for future growth. Yet the pharmacy services business needs to contend with industry heavyweights CVS Caremark (NYSE: CVS) and Walgreen (NYSE: WAG).

While the consolidation under way in the industry might just make BioScrip a possible target itself, CAPS member dynam000 says its own purchase of Critical Homecare Solutions will pay off down the road:

CHS acquisition to assist with revenue and earnings growth. Fairly priced today, but has potential to outperform once all acquisition operational issues are resolved.

KKR Financial
Analysts have been getting bullish about KKR Financial and other similarly situated corporate debt investment companies, like Apollo Investment (Nasdaq: AINV), particularly as the easing of the financial crisis and improvements in the economy have led to a nice resurgence, resulting in stronger investment gains by the private equity firm.

With 85% of the CAPS member who have rated KKR Financial expecting market-beating returns, it seems that's a sentiment CAPS members have been agreeing with for some time, figuring the share price was going to be heating up.

Winn-Dixie Stores
CAPS member SharePlanner thinks Winn-Dixie Stores makes a good takeover target since its prime location stores would be useful to a Publix or Wal-Mart (NYSE: WMT). With the latter saying it wants to aggressively roll out smaller store formats, a chain of existing buildings would certainly allow it to be up and running a lot faster in more places. Wal-Mart has also shown a willingness to pay up for expansion, as its $4 billion offer for South African chain Massmart clearly indicates:

One company that seems like a good ideal, is Winn-Dixie (WINN)-they have the infrastructure and locations that a company like Publix (privately held southeastern grocery chain) could benefit from to expand their sphere of influence. Wal-Mart (WMT) would be another interesting name who could buy them on the cheap (a premium over the current market cap of $320m would be pennies for the retail giant to fork out) and put a bunch of those Neighborhood Market stores in its place.

Three for free
Are these companies still a good value 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 whether you think these or any other stocks are starting to rev their engines.