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 140 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
|
Stock
|
CAPS Rating*
6/14/10
|
CAPS Rating*
9/14/10
|
Trailing 13-Week
Performance
|
| Entravision Communications |
**
|
****
|
42.3%
|
| Gleacher & Co. (Nasdaq: GLCH ) |
**
|
***
|
58.7%
|
| iStar Financial (NYSE: SFI ) |
**
|
***
|
86.2%
|
Source: Motley Fool CAPS Screener; trailing performance from Sept. 17 to Dec. 13.
*CAPS Rating out of 5 stars.
Gleacher & Co., in fact, was previously picked as a stock ready to run in September, and represented a period when the market rose by 10%. 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 47 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
|
Stock
|
CAPS Rating* 9/14/10
|
CAPS Rating* 12/13/10
|
Trailing 4-Week Performance
|
P/E Ratio
|
| Mindspeed Technologies (Nasdaq: MSPD ) |
**
|
*****
|
2.8%
|
10.0
|
| W.R. Grace (NYSE: GRA ) |
**
|
***
|
5.2%
|
12.5
|
| Richardson Electronics (Nasdaq: RELL ) |
**
|
****
|
2.4%
|
9.3
|
Source: Motley Fool CAPS Screener; price return from Nov. 19 to Dec. 13.
*CAPS Rating out of 5 stars.
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.
Mindspeed Technologies
The disappointing earnings report from Cisco that's sent its stock to levels it hasn't seen since the summer of 2009 has also caught network equipment chip maker Mindspeed Technologies in its wake. Its own earnings beat expectations, even if its outlook for the current quarter was every bit as cautious as its partner's.
Considering Mindspeed's growth in revenues and profits, though, it seems as if the guidance has been priced into the stock, which is now down 41% from its 52-week high. CAPS member Kewldad thinks it will continue to improve its balance sheet going forward: "Mindspeed has a habit of reducing their debts as time goes on. I like that. I am buying a few hundred shares this week!"
Adding Mindspeed to your watchlist allows you to stay on top of all the Foolish news and analysis as they develop.
W.R. Grace
China put the world in a tizzy when it decided to reduce its exports of rare earth metals, since it is the largest producer of them. Molycorp (NYSE: MCP ) , one of the few miners outside of China still digging them out of the ground, soared as a result of the announcement and W.R. Grace can look at its deal with Molycorp last month as very fortuitous. The rare earth minerals miner will supply Grace with more than 75% of its lanthanum production each year until 2015.
With 80% of CAPS members rating Grace to outperform the broad market averages, its apparent they believe it's still a rare gem itself. Let us know whether you agree on the W.R. Grace CAPS page.
Richardson Electronics
Highly rated CAPS All-Star member Capsperson sees the continued growth of Richardson Electronics in Asia markets as a prime mover for this otherwise small electronics manufacturer.
Their radio frequency products continue to sell well with the majority of the sales and profit now coming from the Asian and Pacific markets. That trend will probably continue. With a PEG of under 1 this is a value play but it may need to be held long term for decent share price appreciation.
Despite its share price almost doubling over the past year, as Capsperson notes it appears to remain attractively value on a number of metrics. Yet having sold its RF division to Arrow Electronics (NYSE: ARW ) back in October, has it given away its best products? Let us know on the Richardson Electronics CAPS page or in the comments section below whether it's an investment you should be making too or if it will short circuit.
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. 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.
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