3 Stocks Set to Soar

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

Stock

CAPS Rating 6/28/12

CAPS Rating 9/28/12

Trailing 13-Week Performance

Flagstar Bancorp (NYSE: FBC  )

**

***

72%

Chenier Energy (NYSEMKT: LNG  )

**

***

19.6%

Cathay General Bancorp (NASDAQ: CATY  )

**

***

11%

Source: Motley Fool CAPS Screener; trailing performance from Sept. 28 to Dec. 27.

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

Stock

CAPS Rating 9/28/12

CAPS Rating 12/27/12

Trailing 4-Week Performance

PE Ratio

FirstMerit (NASDAQ: FMER  )

**

***

1.1%

12.3

Greenbrier Companies (NYSE: GBX  )

**

***

(17.7%)

8.2

Perfect World (NASDAQ: PWRD  )

**

***

(4.4%)

7.1

Source: Motley Fool CAPS Screener; trailing performance from Nov. 30 to Dec. 27.

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

FirstMerit
Ever since announcing it was buying fellow Midwestern bank Citizens Republic Bancorp (UNKNOWN: CRBC.DL  ) for $952 million, shares of FirstMerit have been in freefall. Yet the combined banks will have $15 billion in loans, $19 billion in deposits, and total assets in excess of $24 billion while witnessing significant accretion to earnings in 2014 .

Perhaps the market didn't like the fact it would be on the hook for paying back the $345 million bailout it got through the Troubled Asset Relief Program, or that Citizens lost some $1 billion since 2007 . Whatever the reason, FirstMerit beat to the punch rival Huntington Bancshares (NASDAQ: HBAN  ) , which was rumored to be in the market for a bank in the region, and with the industry going through a period of consolidation Fifth Third Bancorp (NASDAQ: FITB  ) was also said to be on the prowl .

While it's not always a benefit to come in first when pursuing damaged goods, FirstMerit seems as though it should come out ahead in the end.

Greenbrier Companies
Railcar maker Greenbrier Companies is another example of a buyout attempt gone awry after it rejected a sweetened offer from American Railcar Industries (NASDAQ: ARII  ) to get bought out for $22 a share.

Carl Icahn, who has a controlling interest in American Railcar, had upped the bid after allegedly being told by Greenbrier's investment banker an offer in the range of $20 to $22 a share would be better. When the railcar maker rejected the offer, Icahn sold most of the stake he had built up in Greenbrier, effectively ending his attempt to take over the rival.

Maybe Greenbrier thought it could push the envelope further because it said it still wants to talk, but Icahn doesn't appear to have any interest at the moment . With the stock losing nearly a quarter of its value since the deal fell apart, Greenbrier may generate some green yet for intrepid investors.

Perfect World
The free-to-play/pay-to-play-more online gaming business model is not a tried-and-true winner, though gamers from Perfect World to Electronic Arts (NASDAQ: EA  ) have broadly adopted the method of having a recurring revenue stream. Even mobile-gaming specialist Glu Mobile (NASDAQ: GLUU  ) switched over to the in-game promotion model; it's popular with companies, but not with players, who aren't sold on being nickel-and-dimed for the full-on game experience.

But revenues improved in the latest quarter, rising to 698.5 million renminbi from 676 million in the second quarter, though it was still down from the year-ago period . I'll admit to not be a fan of the freemium gaming model, but Perfect World may now be at the perfect level to get back in. 

Three for free
With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or whether finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether Huntington Bancshares is a buy today, I invite you to read our premium research report on the company. Click here now for instant access!


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 29, 2012, at 2:23 PM, twitbustr wrote:

    All IMHO. Yet another pump piece on banks and more specifically, on HBAN. The sheer amount of pumping as measured by the plethora of fluff pieces in just the last thirty days is unbelievable. (Put in HBAN in the yahoo search bar for news and you will be overcome) Where were these so called 'writers' for the last two and a half years? Nothing has changed with regard to HBAN's prospects for growth; absolutely nothing, yet like an orchestrated group of lemmings, 'writers' from what seems every online boiler room all show up at the same time, preaching the same message. It is painfully obvious that when hedge funds want a specific outcome to happen to any given stock or sector, they 'employ' these shill, er, 'writers' en mass to enable the desired outcome through sheer volume of favorable (in this instance) piece writing. Personally, I believe that the economy will tank in '13. How can it not with all of the events unfolding both dometically and internationally? Motive here? So the hedgies can file out of the banking stocks in an orderly fashion and lock in their '12 profits while retail investors 'buy' to keep the price up while the 'exit' is happening. Motley Fool and it's own bevy of pump 'writers' should be ashamed of themselves as it is not the org it was promised to be when first envisioned by it's two founders...

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