Discovering a great stock won't do you much good if you find it only after its price surges upward. But predicting which stocks might soon head for the stratosphere isn't easy -- unless you enlist the help of a few thousand friendly Fools.
I used our investor intelligence database at Motley Fool CAPS to screen for stocks that our CAPS investors marked up before their share prices rose over the past three months. My screen returned just 117 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
|
Stock
|
CAPS Rating 10/28/10
|
CAPS Rating 1/28/11
|
Trailing 13-Week Performance
|
| Innospec |
**
|
****
|
76.3%
|
| Polaris Industries |
**
|
***
|
41.4%
|
| Westlake Chemical |
**
|
***
|
70.6%
|
Source: Motley Fool CAPS Screener; trailing performance from Jan. 28 to April 27.
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 out of five 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 56 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
|
Stock
|
CAPS Rating 1/28/11
|
CAPS Rating 4/27/11
|
Trailing 4-Week Performance
|
PE Ratio
|
| Canadian Solar (Nasdaq: CSIQ ) |
**
|
***
|
(8.0%)
|
8.8
|
| Entropic Communications (Nasdaq: ENTR ) |
**
|
***
|
9.4%
|
9.5
|
| Ruth's Chris Steak House (Nasdaq: RUTH ) |
**
|
***
|
0.2%
|
14.8
|
Source: Motley Fool CAPS Screener; price return from April 1 to April 27.
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.
A dimming future
With a large presence in Italy, Canadian Solar particularly suffered from the Italian government's decision to slash its generous subsidy program this summer. Its customers postponed their purchases until the situation got clarified. Canadian Solar won't be alone in the eventual fallout, though. Sunpower (Nasdaq: SPWRA ) receives 40% of its revenue from Italy; Suntech Power (NYSE: STP ) garners almost 12%; and First Solar (Nasdaq: FSLR ) gets 9%.
While the first reports of a cutback sounded severe, it appears the Italian government has decided to adopt a go-slow approach and transition in its cuts, which should help solar shops like Canadian Solar adjust to the new regime. Of course, some investors believe that the industry relies so heavily upon subsidies for its growth that any decline in support will undermine solar's potential. As CAPS member JackCaps put it, Canadian Solar is "[y]et another solar company propped up by government subsidies and incentives."
Let us know on the Canadian Solar CAPS page whether this Chinese solar specialist can burn through the fog of conjecture.
Cutting the cord
While lagging sales of next-generation TVs weigh heavily on consumer-electronics superstore Best Buy (NYSE: BBY ) , helping its customers connect all of their devices has proved a far more successful line of business. Best Buy saw 50% unit volume growth in AirCards and MiFi devices that deliver mobile broadband service to computing devices.
That sort of growth will likely continue, given Entropic Communications' latest results. The company reported a 90%-plus increase in revenues year over year, on the strength of continued expansion of the connected home entertainment market. Connectivity will be a key driver for the consumer electronics market, and CAPS member PatienceGrasshpr thinks Entropic is a financially nimble company that should continue to grow:
I believe in the short term, this stock is a short squeeze candidate, so I'm entering my pick. However, I also note that the company is debt-free, profitable, has buy ratings on it by analysts, seems to be doing pretty well on cash and A/R, and has a decent amount of insider ownership.
Tell us on the Entropic Communications CAPS page whether it will continue to connect with investors.
Steaking a claim
I'm a steak-and-potatoes kind of diner, but not at any price. So while Ruth's Chris Steak House might whet the appetite with its fine cuts of beef in a period of rising inflation, the sticker shock that accompanies its dining experience could hinder its results.
Still, the strong results of handbag maker Coach suggest that luxury's making a comeback. Some 87% of CAPS members rating the fine-dining restaurant chain think it can outperform the market averages. You can sample the fare on the Ruth's Chris Steak House CAPS page, then add it to the Fool's free portfolio tracker to see whether it ages as well as its beef.
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.
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