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

Stock

CAPS Rating 7/16/12

CAPS Rating 10/15/12

Trailing 13-Week Performance

Virtus Investment Partners

**

*****

48.4%

TripAdvisor

**

***

47.5%

Oriental Financial Group

**

***

40.2%

Source: Motley Fool CAPS Screener; trailing performance from Oct. 19 to Jan. 14

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

Stock

CAPS Rating 10/15/12

CAPS Rating 1/14/13

Trailing 4-Week Performance

PE Ratio

Anworth Mortgage (NYSE: ANH  )

**

***

2%

8.3

Arctic Cat (NASDAQ: ACAT  )

**

***

6.9%

13.6

Men's Wearhouse (NYSE: MW  )

**

***

2.2%

12.2

Source: Motley Fool CAPS Screener; trailing performance from Dec. 21 to Jan. 14.

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.

Anworth Mortgage
It's true I'm being dragged kicking and screaming to the realization that maybe the housing market really is improving. What started off as something more like a zombie shuffle, housing's numbers turned into a confident gait by the end of last year, even if it wasn't a full sprint. Even Warren Buffett says the industry is better and worthy of investment, which bodes well for Anworth Mortgage, since it mostly invests in paper backed by the taxpayer.

With lower risks facing it, in the event this is just another head fake by the market, it -- like Annaly Capital, Chimera Investment, and other mortgage REITS -- may just overcome the outsized pressure brought to bear on their returns because of the open-ended nature of the Fed's quantitative easing program. A dividend that yields 9.9% today at least pays investors for the wait (and the risk) of having a turnaround confirmed.

Arctic Cat
Although analysts seem to have divergent opinions on whether demand for snowmobiles and ATVs are rising and falling -- it largely seems to depend on the area of the country -- Arctic Cat could kick up some serious dust in the wake of a vehicle recall from primary competitor Polaris (NYSE: PII  ) . The Consumer Product Safety Commission warned of a potential loss of control on some 427 Polaris off-road vehicles, which just might push to Arctic Cat consumers looking to purchase.

At less than 11 times forward earnings, the Cat is offering investors an attractive discount compared to Polaris and sometime-competitor Harley-Davidson (NYSE: HOG  ) , which trade at 17 and 15 times estimates. And with its enterprise value going for less than seven times the free cash flow it generates, it seems exceptionally cheap at these levels.

Men's Wearhouse
I'll admit when it comes to buying suits, I prefer Jos. A. Bank (NASDAQ: JOSB  ) to Men's Wearhouse, but in this era of persistent high unemployment, the shares of both clothiers have unraveled as they've fallen about 20% or so from their 52-week highs. While they both trade at around 12 times earnings and 10 times estimates, it's Jos. A. Bank that looks better when comparing it to analyst growth estimates. Yet when you look at their prices compared to their sales, that's where Men's Wearhouse looks snappy: It's discounted at about half the value of its rival.

No doubt both will feel the larger employment picture, and with the number of jobless sitting just under 8% (we'll ignore the massaging that goes into those figures; the number of truly unemployed is much higher), it's not likely to abate anytime soon. But if and when the economy turns, look for Men's Wearhouse to come out of the gate first. 

Three for free
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