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 85 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 Sep. 16 to Dec. 16. CAPS rating = out of five.

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 65 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 Nov. 18 to Dec. 16. CAPS rating = out of five.

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.

Bed Bath & Beyond
Home sales over the past four years will be revised downward, perhaps by as much as 20%, according to the National Association of Realtors, because the NAR was double-counting some properties and including some new-home sales in existing-home data. But it's apparent that home furnishings retailer Bed Bath & Beyond is no longer as tied to the health of the housing market as it once was.

Partly a result of the bankruptcy of Linens 'n Things, which resulted in the closing of all of LNT store locations, but also due to competitors being more niche players -- think Pier 1 Imports (NYSE: PIR) or Williams-Sonoma (NYSE: WSM) -- Bed Bath & Beyond has dominated the field and been the one place consumers can turn to for home furnishings, both for new and existing homes. Its stock has risen from below $18 a share at its nadir in October 2008 to over $60 a share today.

More than 1,200 CAPS members have weighed in on Bed Bath & Beyond, and 83% of those see it still outperforming the market. Head over to the Bed Bath & Beyond CAPS page to furnish your opinion on its future and track its progress by adding the stock to your watchlist.

Cooper Tire & Rubber
Because Cooper Tire & Rubber depends primarily on the North American replacement tire market for about three-quarters of its revenue, the used-car market means more to it than it does to Goodyear (NYSE: GT), which makes more premium and specialty tires. But a tight used-car market has changed the dynamics of the new-vs.-used argument, and therefore if new cars start selling better, Cooper could get the short end of the stick.

Cooper has seen trailing-12-month sales rise 18% over year-ago levels, in part because it's raised prices on its tires, but this hasn't been enough to overcome the higher cost of oil and rubber, so profits fell 39% for the same period. With cost-reduction initiatives under way, however, it should be able to increase efficiency while also moving toward higher-margin high-performance tires.

CAPS member Junkyardhawg1985 sees Cooper's focus on the used-car market as a competitive advantage.

Cooper Tire (CTB) is extremely cheap with a trailing P/E of 6.4, an enterprise value to revenue of 0.31 and growing revenue 15% Y-o-Y. The other advantage that CTB brings is that they sell tires to the replacement market, not the new car market. As the economy is in the toilet, they continue to sell tires.

Add Cooper Tire & Rubber to the Fool's free portfolio tracker to see if it can drive off to greater profits.

WMS Industries
According to a just-completed study by PricewaterhouseCoopers, the U.S. gambling industry will claw back to growth of 5% through 2015, but the Asia-Pacific region will experience robust expansion of more than 18%. Those kinds of numbers will help industry leaders International Game Technology (NYSE: IGT) and Bally Technologies as well as WMS Industries and Konami, as the four companies account for 90% of the new slot machines shipped annually.

WMS surprised the market with a disappointing 81% drop in profits last quarter, but it is undergoing a restructuring that will see more of its products sent overseas. International sales now account for 39% of total revenue.

Some 83% of the CAPS members rating the casino game manufacturer think it can go on to beat the Street, but tell us in the comments section below or on the WMS Industries CAPS page what you think the odds are of its success, and add it to your watchlist to be notified of its progress.

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, then check out this free report on dividend-paying stocks whose engines are all revved up. You can read it for free, but hurry, because it won't be around for long.