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

Stock

CAPS Rating 9/12/12

CAPS Rating 12/12/12

Trailing 13-Week Performance

Roma Financial

**

*****

81.1%

Willbros Group

**

***

67.4%

Capital Senior Living

**

***

57.9%

Source: Motley Fool CAPS Screener; trailing performance from Dec. 14 to March 11.

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

Stock

CAPS Rating 12/12/12

CAPS Rating 3/11/13

Trailing 4-Week Performance

PE Ratio

Big Lots (NYSE: BIG  )

**

***

6%

14.0

First American Financial (NYSE: FAF  )

**

***

(1.1%)

8.8

First Merit (NASDAQ: FMER  )

**

***

0.4%

12.8

Source: Motley Fool CAPS Screener; trailing performance from Feb. 15 to March 11.

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.

Big Lots
Although with the jobs report last week showing substantial improvement in the economy, it's also apparent that whatever legs the market has are still wobbly at best, but it still bodes well for deep discount stores like Big Lots, which recently reported earnings that came in ahead of estimates. Total sales were up 5% generating profits of $2.08 per share for the quarter, a 13.7% increase over the same period in 2011. While same-store sales fell 3.5%, Big Lots believes it will be able to limit the amount of markdowns that plagued earnings in the past. 

With new expansion into Canada now possible following the acquisition of Liquidation World, the closeout specialist is looking forward to it being accretive to earnings right away. Shares are up 26% year to date, but it might just be able to reach the highs it achieved late last summer before the stock collapsed because of weak sales. It's a turnaround story that could actually achieve a new direction.

First American Financial
Along with the improving jobs picture is a housing market that finally looks like its laid a firm foundation on which to grow. New home sales rose to their highest level since July 2008 and prices are expected to jump 8% this year while private mortgage insurers like Radian Group and MGIC Investment have been on a tear. That ought to mean title companies like First American will be sitting pretty, too, because more homes sold will generate greater business for them.

It also recently beat analyst estimates for earnings as title insurance revenues rose 30% in the fourth quarter. With First American being one of the largest players in the industry, it will generate more activity than most as housing continues to improve.

While the stock is up 60% over the past year, it's actually been relatively flat over the last few months, but continued positive reports out of the housing sector should help bolster that performance.

FirstMerit
Regional banking concern FirstMerit fills out our trio of stocks poised to move higher that have recently beat Wall Street projections. Fourth-quarter per share profits came in at $0.35, nicely ahead of expectations of $0.32 per share. The gains were driven by its ability to improve the quality of its loans while lowering its costs even as it increased its average loans by 10% to $8.4 billion. Its provision for loan losses also plunged 42%. 

Of course the Fed's low interest rate policies continue to present a challenge, and although there had been a glimmer of hope that it would ease up on its quantitative easing, it was firmly quashed that it would be anything less than full steam ahead on easy money.

FirstMerit is looking beyond monetary policy to its acquisition of Citizens Bancorp to assist in driving additional growth ahead once it receives regulatory and shareholder approval. The regional bank's stock has also rebounded sharply in recent periods, up 26% from its lows, but there are enough tailwinds behind it to suggest it will continue on its way higher still. 

Three for free
Wells Fargo's dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, I invite you to download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.

 


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