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 just 100 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:

Stock

CAPS Rating* 
10/12/10

CAPS Rating* 
1/12/11

Trailing 13-Week 
Performance

Oncothyreon

**

***

26.1%

Sify Technologies

**

***

56.9%

US Gold

**

***

25%

Source: Motley Fool CAPS Screener; trailing performance from Dec. 31 to April 1. *Out of 5.

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 65 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:

Stock

CAPS Rating 1/12/11

CAPS Rating 4/11/11

Trailing 4-Week Performance

P/E Ratio

Extreme Networks
(Nasdaq: EXTR  )

**

***

1.8%

16.1

International Paper
(NYSE: IP  )

**

***

7.8%

19.6

Oplink Communications
(Nasdaq: OPLK  )

**

***

(5%)

19.1

Source: Motley Fool CAPS Screener; price return from March 4 to April 1.

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.

Extreme Networks
It's not only Extreme Networks that's feeling the effects of networking equipment order delays and tight competition. Industry giant Cisco (Nasdaq: CSCO  ) has been buffeted by the same ill wind, and it decided to restructure its consumer division. That means getting rid of the Flip camera unit and reorganizing home Wi-Fi networking unit Linksys. One winner from the realignment would be Netgear (Nasdaq: NTGR  ) , but with one less big rival in the space, Extreme Networks should come out ahead, too.

With 98% of the CAPS All-Stars rating the networking equipment maker to go on and beat the broad market averages, it seems the bullish sentiment has a lot of company. Put the stock on your own watchlist and let us know on the Extreme Networks CAPS page and let us know if you think it will still short circuit.

International Paper
MeadWestvaco
just reported earnings last week that showed profits soaring 93% on revenues that were 5% higher. While that was slightly below what analysts were looking for, industry giant International Paper reports its own earnings at the end of the month, and analysts expect huge growth this year. More importantly, though, is IP's purchase of a majority stake in an India paper company that should drive revenues higher in one of the top growing markets.

Of the more than 400 CAPS members rating International Paper, 85% believe it will top the indexes. Paper over the International Paper CAPS page with your opinion on whether the subcontinent will lift IP above any subpar returns.

Oplink Communications
With both Oclaro (Nasdaq: OCLR  ) and Finisar (Nasdaq: FNSR  ) turning a blind eye on the immediate future of optical networking, it's not too surprising then that Oplink Communications would find its shares down 40% from their 52-week high.

With telecom carriers still needing to upgrade their fiber optic gear to support mobile computing and the growth of 3G networks -- let alone emerging 4G -- CAPS member Tmurray5 likes the future of the industry.

See your way over to the Oplink Communications CAPS page then add it to the Fool's free portfolio tracker and see if it makes good on its promise.

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.

Netgear is a Motley Fool Stock Advisor pick. The Fool has created a bull call spread position on Cisco. Motley Fool Alpha owns shares of Cisco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey owns shares of Cisco but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 12, 2011, at 2:58 PM, garifool wrote:

    You might be right, I am about to cover my short on CSCO, but isn't the expression "Ready to Roar" somewhat too often used in your pages?

    This is a "cliché" that I have a hard time with in normal times, but in the economy that we see ahead, I would say that those stocks might well do somewhat better than the other.

    But to "ROAR"?

    Hum.. do you lack of vocabulary?

  • Report this Comment On April 12, 2011, at 4:21 PM, TMFCop wrote:

    garlfool,

    Thanks, but really, is a title like "Stocks That Will Do Kinda, Sorta, Better Than Some Others" all that interesting?

    Besides, a little alliteration is like a little bit of sunshine in your day. Thanks for reading,

    Rich

  • Report this Comment On April 12, 2011, at 11:03 PM, garifool wrote:

    Rich,

    Thanks for replying.

    I still think that "ready to soar" is too often used (not only on Fools, in very advertisement, even the less reliable ones)

    It is like 100s of adds : "Trade like Buffet".

    Does Buffet "trade"?

    Or "6 stocks you can’t afford to ignore!"

    Or "5 stocks that Buffet would like to buy".

    Or "3 stock to own for the rest of your life".

    Sure your article was there to advertise "Motley Fool Hidden Gems".

    I think that your colleague's article (another Rich) about Cisco (Cisco Is Half-Right to Kill the Flip)

    is also very interesting, well thought, instructive, and the title does not sound so much like advertising.

    If it is your own style of writing, I'll respect that too.

    If it a style requested by "The fools", it's sad.

    I personally have read "ready to soar" much too often.

    When I discovered Complete Genomics by mid-March, THAT was a stock ready to soar!

    But I did not find it on the Fools, nor though any other site or filter.

    I found it like it happens sometimes: I entered a ticker... with a typo in it, and it brought me to GNOM!

    And it was a pretty fun ride! 1 month 50%!

    Maybe you could find another way to put a little bit of sunshine in our day?

    Today (April 12), the markets were not too shiny, (except for the shorters like me), but the sun outside my window was wonderful!

  • Report this Comment On April 17, 2011, at 6:50 AM, stevenjc wrote:

    Here i am trying to find out more about International paper and this is what i find. I am glad that you have procieved a up swing for them. I am currently working in one of there facilites in the midwest. I don't know if i want to stick with them or not but if they can make money in this past couiple of years then maybe they are worth the invenst ment of my time and your money.

    I liked the "ready to roar" it sounds primitive and strong. this is the first at this site so i guess i cant say if it's been played out. thanks for your opinon you may have just given them another "Fool" of a worker.

  • Report this Comment On April 20, 2011, at 10:26 PM, kdohert wrote:

    stevenjc,

    As a retired 30+ year IP vet, I'm glad you are still interested in IP's fortunes on the market. I believe that IP is hugely undervalued for numerous reasons.

    First, the market has been waiting for the paper industry to sort itself out because there were too many companies with similar products competing against each other, which held profit margins down.

    Second, the industry had too many old, unproductive manufacturing facilities compared to other parts of the world.

    Third, as a bricks and mortar company, any US based manufacturing company was considered obsolete vs Toyota, et. al.

    IP has been working through this over the last 20 years by buying out weak, but pesky competitors, closing obsolete facilities, and becoming a major player in all its markets. Expansion into Brazil, China, and now, India has been the smart thing to do.

    These acquisition and expansion costs have to be paid for, but the Company's cash flow has allowed these activities to succeed without overdiluting the Company's market value.

    Also IP has been a long-time leader in dividend yield, which eroded during the crash, but is now coming back.

    Overall, based on where Faraci (CEO), et. al. is taking the Company and the quality of accomplishments, I think IP is a great play and is very undervalued.

    Kevin

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