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 just 159 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
|
Stock
|
CAPS Rating June 7
|
CAPS Rating Sept. 7
|
Trailing
13-Week Performance
|
| Greenbrier |
**
|
***
|
59%
|
| THQ |
**
|
***
|
61.2%
|
| Veeco Instruments (Nasdaq: VECO ) |
**
|
***
|
39.9%
|
Source: Motley Fool CAPS Screener; trailing performance from Sept. 10 to Dec. 7.
Veeco Instruments, in fact, was previously picked as a stock ready to run in August, and represented a period when the market rose by 12%. 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 had just been 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, but which some investors think are ready to run today:
|
Stock
|
CAPS Rating Sept. 7
|
CAPS Rating Dec. 7
|
Trailing
4-Week Performance
|
P/E Ratio
|
| AXT (Nasdaq: AXTI ) |
**
|
***
|
7%
|
17.0
|
| Silicom (Nasdaq: SILC ) |
**
|
***
|
9.4%
|
21.9
|
| Solarfun Power (Nasdaq: SOLF ) |
**
|
***
|
(5.4%)
|
19.7
|
Source: Motley Fool CAPS Screener; price return from Nov. 12 to Dec. 7.
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.
AXT
By taking advantage of the current tech boom and the resulting increased demand for its materials, semiconductor substrate producer AXT has benefitted from rising sales and profits. It's outpacing the efforts even of TriQuint Semiconductor (Nasdaq: TQNT ) , a notable outperformer that is riding the coattails of the iPad's popularity. In its latest quarter, sales at AXT were up 60% while profits doubled as smartphones and other intelligent wireless devices drove growth, helping some CAPS members decide that this was one hot stock.
With AXT's stock having tripled over the past year, CAPS member LoveMeSomeGreen says investors shouldn't worry about it going higher still.
Don't fear these stocks with big gains this year! Look at AXTI from the April highs thru today. The markets have gone practically nowhere, and these guys have managed solid revenue growth in this slow growth environment. Last time I checked, that was a good thing. This stock was trading at 25 p/e until these two back to back monster quarters. This is a still a golden pony.
Adding AXT to your watchlist allows you to stay on top of all the timely Foolish news and analysis.
Silicom
Computer networking stocks were in the doldrums earlier this year, but in the summer months, Silicom, Riverbed Technology (Nasdaq: RVBD ) , and Juniper Networks (Nasdaq: JNPR ) caught fire, with Riverbed up 165% over the past six months. Silicom was no slouch, either: It nearly doubled, with a bright outlook for the immediate future. Network security and optimization are on the rise, and Silicom has been securing numerous design wins that should serve it well.
Of the CAPS members rating Silicom, 97% pick it to outperform the broad market averages. Let us know whether or not you agree on the Silicom CAPS page.
Solarfun Power
Unlike AXT and Silicom, solar power specialist Solarfun Power hasn't reported big gains lately and its shares are down 25% over the past three months and more than 36% from its 52-week high. Solar stocks in general have been hit because investors sold off shares in November despite improving fundamentals.
CAPS member eremmell thinks Solarfun Power will recover from its recent secondary offering that helped push prices down: "Pricing of follow-on public offering is $9/share, this stock is trading below that currently. It will go back up over $9/share once the dilution is done."
Let us know on the Solarfun Power CAPS page or in the comments section below whether it's an investment you should make, too.
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.
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