3 Stocks Ready to Roar

By Rich Duprey | More Articles
May 8, 2011 | Comments (6)

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There are plenty of strategies for picking stock winners, from finding low-P/E stocks to seeking companies that are selling at a discount to their future cash flows. At the small-cap investment service Motley Fool Hidden Gems, the analysts are able to stay ahead of the pack, even in this market, 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 investors marked up before the share prices rose over the past three months. My screen returned just 101 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:

Stock	CAPS Rating (out of 5), 11/3/10	CAPS Rating, 2/3/11	Trailing-13-Week Performance
Carrols Restaurant Group	**	***	34.3%
Red Robin Gourmet Burgers	**	***	31.6%
Vital Images	**	***	35.3%

Source: Motley Fool CAPS screener; trailing performance from Jan. 21 to April 19.

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 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 (out of 5), 2/3/11	CAPS Rating, 5/3/11	Trailing-4-Week Performance	P/E Ratio
AT&T (NYSE: T )	**	***	3.7%	9.1
CreXus Investment (NYSE: CXS )	**	***	4.1%	17.5
eMagin (Nasdaq: EMAN )	**	***	(7.5%)	16.0

Source: Motley Fool CAPS screener; price return from March 25 to April 19.

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. For now, let's examine why investors might think these companies will go on to beat the market.

AT&T
You always have to wonder about companies that try to win in the courtroom what they can't gain in the marketplace. Sprint Nextel (NYSE: S ) is taking its case against AT&T's merger with T-Mobile and shopping it around to various state attorneys general. Because some states are more aggressive in regulating customer contracts than is the federal government, Sprint believes that it will stand a better chance of convincing one of them to derail the buyout.

Connecting AT&T and T-Mobile will indeed make the resulting company a bigger, stronger organization, surpassing even Verizon in size, but that doesn't mean it will hurt consumers, as Sprint contends. CAPS member ssouvigny sees the merger as another step toward reassembling the Ma Bell that the government forcibly broke apart: "As a 30 year veteran of AT&T, I have watched the metamorphosis of the Bell System through divestiture to rebirth as the new at&t. It became evident that Ed Whitacre and SBC were going to reassemble as much of the Bell System as they could to prepare for the coming renaissance in Telephony, Wireless broadband communications and the Smart Phone."

Let us know on the AT&T CAPS page or in the comments section below whether you think this merger is a good idea.

CreXus Investment
Commercial real estate investor CreXus Investment is another company being sued over a merger -- one that it declined to undertake with Starwood Property Trust (Nasdaq: STWD ) . Instead of merging with Starwood, CreXus bought a real estate loan portfolio from Barclays that it financed through a 50 million-share offering. A shareholder objected to CreXus' decision to snub Starwood and is seeking class action status.

The threat of courtroom drama aside, CAPS member ArfytheSeal believes CreXus offers investors a pretty good portfolio of properties that's undervalued: "The company invests in commerical real estate (CRE) mortgages through both securities (commercial [mortgage] backed securities, or "CMBS") and through individual [mortgage] loans. The portfolio is managed by the folks from Annaly, a residential mortgage REIT with an excellent long-term track record."

Tell us on the CreXus Investment CAPS page whether you think the company can continue to be a growth story.

eMagin
Imagine, if you will, a specialized technology maker having the field to itself for products the military finds essential, and you'll understand the bull case for eMagin, a maker of active-matrix organic LED micro-displays on silicon. Through contracts with ITT (NYSE: ITT ) and FLIR Systems (Nasdaq: FLIR ) , eMagin has a pipeline to the military for night-vision goggles and thermal-imaging cameras.

A few more than a baker's dozen of CAPS All-Stars have weighed in on the micro-display maker, but only one thinks it won't be beating the broad market averages going forward. Display your own opinion on the eMagin CAPS page and add the stock to the Fool's free portfolio tracker to see whether it becomes a mega-hit.

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.

The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal — and told his biographer, "I will spend my last dying breath... and every penny of Apple's $40 billion in the bank to right this wrong." What was it that made Jobs so irate — and why could it make a few in-the-know investors some major profits over the coming months and years?

Enter your email address below to find out what made Jobs so enraged!

AT&T is a Motley Fool Inside Value pick. Motley Fool Options has recommended a write covered strangle position on Red Robin. The Fool owns shares of Red Robin and Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.

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Report this Comment On May 08, 2011, at 10:16 AM, conradsands wrote:

AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon (the 10th leading U.S. lobbyist) and AT&T (the 12th leading U.S. lobbyist) get all that money to run commercials 24x7, pay out huge “fat cat” executive bonuses and hire armies of lawyers and lobbyists to push the U.S. market into a wireless industry duopoly -- the American consumer.
Report this Comment On May 08, 2011, at 10:17 AM, conradsands wrote:

Snippets from CNN story …
AT&T lobbyists push for T-Mobile deal
March 28, 2011
For years, AT&T has been one of the biggest political and lobbying forces in town. Last year, it spent $15.3 million and had 93 lobbyists on its roster, including six former lawmakers. Germany's Deutsche Telekom spent $3 million on lobbying for T-Mobile USA in 2010, armed with 41 lobbyists and one former lawmaker.
Many lawmakers have a personal interest in seeing AT&T do well. AT&T ranked as the sixth most popular investment among members of the House and Senate in 2009, the most recent year for which such data is available, according to the Center for Responsive Politics.
And AT&T is considered a heavy hitter during campaign election cycles. In 2010, donors with links to the company made nearly $4 million in campaign contributions to candidates running for federal office.
Report this Comment On May 08, 2011, at 10:17 AM, conradsands wrote:

Anti-Trust Alarms are Going Off ...
Taking into account the whole U.S. market, a combination of Dallas-based AT&T and T-Mobile may raise the Herfindahl- Hirschman Index (HHI), an accepted measure of market concentration, to 3,216 from 2,848, according to a Bloomberg analysis. Any score above 2,500 can indicate a highly concentrated market, and an increase of more than 200 points is “likely to enhance market power,” according to federal guidelines.
If this ridiculous deal goes through, Sprint will be the only low-priced post-paid national wireless carrier left in the United States. T-Mobile customers are already fleeing to Sprint because they know they won’t get low prices from AT&T or Verizon. But AT&T and Verizon are two of the top corporate lobbyists in the country, so I'm sure the Feds are happy to oblige anything they want to do to secure a stranglehold on the market at the expense of the consumer.
Report this Comment On May 08, 2011, at 6:28 PM, Jim98122x wrote:

The stupidest thing that T-Mobile customers can do right now is to "flee to Sprint" or to any other carrier, for that matter. AT&T always grandfathers rate plans when new ones are introduced. They did it when ATTWS and Cingular merged. If they like their T-Mobile rate plan, they should stay put, as long as they can endure another year of the service degradation that's been happening there. AT&T will let them keep it as long as they want. If/when they need to change their plan and get forced off their grandfathered plan, they've lost nothing from waiting.
Report this Comment On May 09, 2011, at 3:09 AM, Aryabod wrote:

The following site tell us quite a bit.
http://developer.sprint.com/site/global/home/4g/better_exper...
Report this Comment On May 09, 2011, at 10:12 AM, jpatswanson wrote:

Monopolies or near-monopolies are never a good idea. If you don't believe it ask anyone who is trapped in an area served exclusively by Comcast and for whom satellite service is not possible. The only abuse I haven't suffered from them would have to be administered by a whip. ATT has been even worse with my DSL but the only alternative is .....Comcast.

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