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 34 stocks, no doubt reflecting the market's turmoil during that time, and included these recent winners:

Source: Motley Fool CAPS screener; trailing performance from June 24 to Sept. 19. CAPS rating = five stars max.

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. So 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 57 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 Aug. 26 to Sept. 19. CAPS rating = five stars max.

You can run your own version of this screen over on CAPS; just remember that the data is 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.

Alcatel-Lucent
Whenever China is behind the times on something, it dumps a ton of resources into the niche and seeks to achieve parity with the rest of the world. The latest instance of playing catch-up is in telecom, where China's 3G network is getting widely deployed while much of the rest of the world is transitioning to 4G.

The government just approved Sequans Communications' (Nasdaq: SQNS) 4G LTE chips, which the company it was testing with Huawei and Alcatel-Lucent. At the same time, Alcatel is helping China Telecom upgrade and expand its 3G network, doubling capacity and increasing coverage and speeds as subscriber numbers rise. So as China is preparing for the next leg up, it's also advancing the legacy system that will allow 26 million people to gain broadband access.

Highly rated CAPS All-Star traviskang says the market is valuing Alcatel as if it's going bankrupt, giving investors a discounted entry point:

Undervalued based on assets @ P/C of 1.34 (market is signalling that it expects ALU to bankrupt). The patents alone are worth more than what the stock is trading at now ($3.33)

Go to the Alcatel-Lucent CAPS page and chip in your thoughts about whether it will be on the fast track to growth.

Juniper Networks
Analysts may worry that competition from the networking businesses of Cisco (Nasdaq: CSCO) and Hewlett-Packard will pressure Juniper Networks to cut prices to maintain market share, thus lowering margins, but those giants are having troubles of their own.

Cisco has had to scale back its once-vaunted growth rates, putting pressure on management, which says it will still grow margins, while HP has had to restructure itself and walk away from complete lines of business in a highly public and embarrassing admission. Competitive pressures exist for Juniper, but they may not be as extensive as they otherwise could be.

CAPS member Jeffrey2012 sees Juniper as better off than Cisco, but still a slow-going performer on its own. You can add the network operator to the Fool's free portfolio tracker and keep tabs on its progress over the coming quarters.

VistaPrint
It wasn't so much the fourth-quarter results that sunk VistaPrint's stock, since it handily beat analyst expectations, it was the outlook for 2012, with its slowing revenues and initiatives that will swipe strength from earnings, that really brought the marketing specialist low.

However, by targeting the small-business owner with its products and services, it's well-positioned to capture any growth ahead of rivals including TeleTech, Web.com (Nasdaq: WWWW), or Sykes Enterprises (Nasdaq: SYKE). The outlook for business is grim, though, which is why analysts are skeptical of any advances. But those conditions might just lead to consolidation and strength for VistaPrint.

CAPS All-Star ATsykora thinks all the bad news has now been priced into the stock, which tilts the risk-reward ratio in its favor. Add your opinion on the VistaPrint CAPS page.

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.