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

Source: Motley Fool CAPS screener; trailing performance from Feb. 25 to May 27. CAPS rates stocks on a scale of one to five stars.

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

Source: Motley Fool CAPS screener; price return from April 29 to May 27. CAPS rates stocks on a scale of one to five 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.

Hitachi
Despite the Japanese earthquake-tsunami disaster making it impossible to offer guidance, diversified electronics maker Hitachi was able to record a profit as it reined in costs and streamlined operations. The streamlining includes selling its disk drive business to Western Digital (NYSE: WDC). Interestingly, Western rival Seagate Technology (NYSE: STX) also announced an acquisition, the hard-drive business from Samsung. While the European Commission is examining the developments, the sale would allow Hitachi to pare down the 900 or so businesses it oversees.

CAPS member alphapickstweet says the situation in Japan has reduced Hitachi to a much better buy-in price for an otherwise solid company. Drive to a better understanding of the stock on the Hitachi CAPS page and let us know if you think it will outperform.

Jack in the Box
Do you know Jack? Jack in the Box, that is. While the hamburger joint hasn't been as consistent in its sales growth as McDonald's (NYSE: MCD), which experienced a 6% jump in same-restaurant sales, Jack did post positive comps last quarter, and it expects sales to rise even higher this quarter as it improves food quality and service.

Fast-food chains remain a popular category in the restaurant industry. Even Red Robin Gourmet Burgers (Nasdaq: RRGB) has found its shares 75% higher than where they started the year. Jack in the Box hasn't offered nearly the same upward trajectory, but CAPS member vrk100 offers thoughts on why that could change:

Jack represents an opportunity to buy into a business at 7.5x CF which is undergoing a refranchising program where they are continuing to sell CF(even at these depressed levels) at an effective multiple of 12x. In addition the CF they are receiving in place is a more stable, royalty based CF which traditionally earns a much higher multiple.

Add Jack in the Box to the Fool's free portfolio tracker, and see whether investors flip for the burger meister.

W.R. Grace
Is specialty chemicals maker W.R. Grace the picture of a momentum stock? Shares are 30% higher than when it first graced the list of stocks investors thought were ready for a bull run. Following a strong quarter that surprised analysts, it's increased its expectations for how it will perform this quarter. Wall Street increased its forecasts 12% for this year and 16% for 2012.

Two years ago, CAPS member coggi pointed out the opportunity the newly post-bankrupt company presented:

comin outta bankruptcy and as a global manufacturer they will maintain buisness even during recessions.... not to mention they are one of 9 places in the world that manufacture fluid cracking catalyst

The bankruptcy had been driven by asbestos-related lawsuits that had nothing to do with its otherwise healthy operations. With those issues set to finally resolve this year, there's momentum building under Grace's stock. Let us know on the W.R. Grace CAPS page whether you think it remains a company to get behind.

Three for free
Are these companies still good values and ready to make their moves? 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.