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

Stock

CAPS Rating 8/17/12

CAPS Rating 11/16/12

Trailing 13-Week Performance

ReneSola

**

***

118.3%

JA Solar

**

***

81.6%

YPF

**

***

72.7%

Source: Motley Fool CAPS Screener; trailing performance from Nov. 16 to Feb. 15.

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 11/16/12

CAPS Rating 2/15/13

Trailing 4-Week Performance

PE Ratio

Grupo Financiero Galicia (NASDAQ: GGAL  )

**

***

0.2%

9.9

Hillshire Farms (NYSE: HSH  )

**

***

7%

5.4

Sauer-Danfoss (UNKNOWN: SHS.DL  )

**

***

4.6%

14.2

Source: Motley Fool CAPS Screener; trailing performance from Nov. 16 to Feb. 15.

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

Grupo Financiero Galicia
Argentinean banking giant Grupo Financiero Galicia, the country's largest privately owned bank, just reported higher profits from the year-ago period with wider market share gains in deposits and loans made. Still, it came up short of analyst expectations. 

The country's President Cristina Fernandez wants banks to offer even more loans to businesses in an effort to counteract the slowing economy, so investors might expect the bank to expand those gains even further. She wants banks to loan out amounts equal to about 5% of their deposits on hand, similar to an edict she handed down in the fourth quarter of last year, which may help explain why Financiero Galicia's metrics grew for the period. Yet I see a ton of risk associated in an investment here.

While the banks were able to comply with the rules by renegotiating many of the loans previously made to borrowers, it seems a recipe ripe for disaster as bad loans get made simply to meet the mandate. Even if in the short run it boosts results, I find it difficult to make investing in companies domiciled there a long-term strategy because of the control Fernandez wants over the Argentinean economy.

Hillshire Farms
Calved off from Sara Lee last year as the consumer products company split into the Hillshire Farms meats business and the D.E. Master Blenders beverage company, analysts looked for an "M&A event" to be the catalyst for growth because there didn't seem to be another way for Hillshire to grow on its own. But hot dogs and sausages are proving resilient, and shares of the meat processor are up by more than a third from the low point they hit last summer as commodity costs eased, allowing it to easily beat Wall Street's projections and raise full-year guidance.

Management admits commodity prices dominate its performance, but greater investments in marketing, advertising, and promotions are also generating positive consumer responses above expectations, so it plans on putting even more of its resources into its eponymous "power brand" and that of Jimmy Dean.

Having now shed its Australian business, the meat products company will concentrate on improving its North American operations further. Like its Ball Park brand hot dog, we just might see its profits "plump when you cook 'em!"

Sauer-Danfoss
Shares of pump and valve maker Sauer-Danfoss soared at the end of November after receiving from Danfoss A/S an all-cash offer of $49 a share for the remaining 24% stake it doesn't already own. The bid for the company represented a 24% premium to what the shares were trading at beforehand, but as they continue to trade above that level -- most recently at $55 a share -- it suggests investors think there may be a better offer still in the works.

And with good reason, as it's not the first time Danfoss has tried to buy the company. In 2009, Danfoss attempted to acquire the valve maker with a low-ball offer of $10 a share, which was rightly deemed insufficient. While the pot was sweetened to $13.25, and then again to $14 a share, investors still saw it as undervaluing the company and rejected the bids, so Danfoss finally gave up and walked away.

Now that it's back with a much higher offer, the board hasn't been so quick to accept this time around, but let me know in the comments box below if you think Danfoss is still trying to buy the company on the cheap. 

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