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 125 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 Oct. 12 to Jan. 7. CAPS ratings out of five stars.

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 39 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; trailing performance from Dec. 14 to Jan. 7. CAPS rating out of five stars.

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.

Express
Ever since reporting better-than-expected third-quarter earnings -- which sent its stock soaring -- clothing retailer Express has basically been trading sideways as investors wait to see whether the turnaround it's trying to engineer gains traction.

The stock had lost more than half its value until it recorded profits that came in ahead of analyst forecasts just at the start of the Christmas shopping season. Full-year guidance that was also above Wall Street's best guesses, even if it was lower than the year-ago period, gave the markets a reason to push its stock up by double-digit percentages to $14 or so -- and there it's sat. While there is still a good two months or so before Express is expected to report 2012 results, investors may just start bidding shares higher ahead of time in anticipation of a better-than-hoped-for holiday effort.

Skullcandy
It's no secret that I'm not a fan of headphone maker Skullcandy, having likened it in the past to being the "Kim Kardashian of headphones," as it has nothing to offer investors other than a chance to cash in on its marketing prowess. Dr. Dre's Beats presents stiff competition on the over-the-head style headphone, while Apple itself improved its earbud to give it a headache in the in-ear market. The low end is a commoditized product and the high end has a surfeit of competition, including from Bose, Sony, and Klipsch.

Skullcandy lost half its value over the past year and is down 62% from its highs, and while I don't think there's much hope it will regain that kind of lost ground, at some point a stock just becomes too cheap, either for investors or its rivals, who might step in and buy it out. After all, it has its own stable of celebrity endorsers in its portfolio, and since it offers a one-third discount to its sales and trades at just a fraction of its growth estimates, surely a Beats Audio or Sony would find that an attractive combination.

Xyratex
Considering that Western Digital and Seagate Technology both lag as a result of the worldwide slowdown in demand for digital memory storage, it shouldn't be surprising that smaller and relatively unknown Xyratex should feel the pressure on margins too. And though it had a disappointing third quarter that showed industry weakness wasn't abating, it paid out a special dividend of $2 a share at the end of last year and moved its regular dividend payment into 2012 to avoid the new, higher taxes that came with the new year.

Shares are down 40% over the past 12 months and management apparently thinks that's too much of a discount that someone will find it attractive, because it also adopted a management entrenchment plan, er, I mean, shareholder rights plan, that would automatically dilute the stock if someone acquires 15% or more of the outstanding shares. Many companies adopt these so-called "poison pills" if they think someone might try to buy them out. Despite their name, they often serve only to protect executives from getting ousted.

As a maker of storage solutions as well as equipment to make hard drives, perhaps Xyratex needs some fresh, outside perspective to turn things around.