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 investors marked up before their share prices rose over the past three months. My screen returned just 21 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 July 22 to Oct. 21.

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 43 stocks the screen returned, here are three that are still attractively priced but that investors think are ready to run today.

Source: Motley Fool CAPS screener; price return from Sept. 23 to Oct. 21.

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.

Boston Scientific
Heart-device maker Boston Scientific reported third-quarter earnings that saw revenues drop 2.6% and missing both last year's effort and analyst expectations. Profits also dropped by a more significant 25% from the year-ago period as demand for pacemakers and defibrillators declined, but it was significantly ahead of Wall Street's predictions.

Yet the fourth quarter is already looking up, and Boston is on track to record its first annual profit since 2005. Its stent systems segment was able to record growth, though not enough to offset the declines seen in its cardiac rhythm business, which saw sales fall in the U.S. and internationally. But Johnson & Johnson (NYSE: JNJ) has exited the drug-eluting-stent market, and Boston leads Abbott Labs (NYSE: ABT), positioning it for future growth.

CAPS member Danimal82 thinks Boston, with new products due out, will outperform going forward: "New stent coming Q411/Q112 (one in which 40% proceeds won't be going to Abbott), good pipeline/recent [acquisitions], forward looking strategy, slowly but surely driving down debt, still a buyout [possibility] (new president/CEO-to-be from JNJ..)."

Share your thoughts on the Boston Scientific CAPS page if it gets your heart racing, and then put it on your watchlist to keep track of its progress.

KEMET
Tantalum capacitor maker KEMET has a history of beating analyst expectations (it's done so for the past four quarters in a row), and with earnings due out this week it may do so again, since analysts are forecasting profits to fall more than 30% this quarter, setting the bar rather low.

After chipmaker Volterra Semiconductor reported that it expects a weak fourth quarter, we'll see if it trickles down to others in the space. International Rectifier, which will be reporting next week, recently signed a global distribution deal with TTI, Berkshire Hathaway's (NYSE: BRK-B) electronics component maker subsidiary, that portends wider market opportunities. TTI is KEMET's biggest customer, accounting for more than 10% of revenues for the past few years.

CAPS member bdescent says KEMET is sound financially and won't be affected by economic unrest.

Screaming buy on fundamentals. Economy downturn? Shouldn't affect kemet too much.

Tell us in the comments section below or on the KEMET CAPS page whether it has the capacity to grow, and add it to your watchlist to be notified of its progress.

Ralcorp
Like the penny tray at the checkout counter, private-brand products maker Ralcorp is giving one and taking one. Companies, that is. It just completed its $545 million acquisition of Sara Lee, making it a leader in the $1.8 billion refrigerated-dough category, while finalizing plans to spin off its Post cereal division. And it told food giant ConAgra (NYSE: CAG) it can keep the change when it rejected a $5.2 billion buyout offer (for the third time!), believing shareholder value could be better realized through remaining independent and opening up opportunities like the Post spinoff. Ralcorp is one of the largest private-label food makers and has enjoyed substantial success during the recession.

With 93% of the CAPS members rating Ralcorp to outperform the broad market averages, it's clear they think this is no generic opportunity. You can provide your own opinion of its prospects on the Ralcorp CAPS page and then add the stock to the Fool's free portfolio tracker to see if shareholders will realize the value predicted.

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.