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 92 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 April 6 to July 8.

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 55 stocks the screen returned, these three remain still attractively priced, even though investors think they're ready to run today:

Source: Motley Fool CAPS Screener; price return from June 10 to July 6.

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.

Depomed
Despite an FDA approval, Abbott Labs (NYSE: ABT) backed out of a deal to distribute Depomed's Gralise, raising doubts about what the drug can really bring to the post-herpetic neuralgia market. Undaunted, Depomed picked inVentiv Health last month to do what Abbott wouldn't.

In addition to the Gralise squabble, the drug developer hit a rough patch this year. Sun Pharmaceuticals issued a patent challenge to its diabetes drug Glumetza (and Depomed returned the favor), and its CEO suddenly resigned for personal reasons.

But now that Depomed's landed a distribution partner, it might just start to fulfill investors' faith. Only one CAPS All-Star member rating Depomed doubts its ability to outperform the broad market averages. Let us know on the Depomed CAPS page whether you agree that there will be less pain in this pharmaceutical company's future.

eBay
Through its PayPal online payment service, eBay teamed up with Facebook for a micropayment service, giving users the chance to buy games, music, and apps within the social network. While credit card companies may have given a stray glance toward this minor incursion on their turf, eBay's latest acquisition just might have Visa (NYSE: V) and MasterCard starting to break a sweat.

As more people socially network over their mobile devices, the online auctioneer is buying Zong, a mobile carrier billing payment company that expects to process $3 billion in transactions this year. Its technology lets people buy stuff over their mobile phones and have it billed directly to their cellular carrier, using just their phone number. PayPal has always been one of eBay's strengths, and this should enhance it significantly.

CAPS member GudDanMan saw something like this in the works, even if he thought one of the big boys might be involved:

Just think they control a major buying segment already and there is more to come from this juggernaut. The markets for ebay internationally as well as paypal are significant. The big payoff comes with a megamerger with an existing player in the market like Visa or Mastercard...

Add eBay to the Fool's free portfolio tracker and see whether it can dial up growth through this purchase.

Lexmark International
As printers became commoditized, Lexmark International, Hewlett-Packard (NYSE: HPQ), and even Eastman Kodak (NYSE: EK) were left to fight a wasting battle for supremacy. HP largely came out on top, with its imaging and printing group enjoying gains in sales, profits, and market share. Even Kodak, a company for which I've expressed little love, saw a 54% sales increase in consumer inkjet systems in the latest quarter. Lexmark, on the other hand, watched hardware volumes drop 12% in its latest quarter.

Lexmark's hope now lies in laser printers -- likely the printing format of the future. While the company's laser hardware shipments fell 11% in the quarter, perhaps because of Lexmark's 10% increase in average unit retail prices, the supplies that keep those printers humming racked up nearly double-digit gains.

CAPS member cibient considers Lexmark a heavily discounted stock with room to grow or be bought out:

Profitable old tech company, very good valuation here. This is not Kodak nor Xerox. Lexmark generates tons of cash and has Magic Formula characteristics. EV/FCF is below 4, EV/EBITDA at a low 2.58. Quick ratio is around 2. They have to be on a short list for a LBO or to be acquired very soon by another company like Dell.

Let us know on the Lexmark International CAPS page whether an investment here is like printing money.

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.