3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners: low P/E stocks, cheap growth stocks, and more. At the small-cap stock-picking service Motley Fool Hidden Gems, the analysts are beating the market by 20 percentage points by finding undervalued stocks that the market and investors have ignored.

But what if we could find a way to whittle down our list of prospects beforehand, finding those whose engines are just getting warmed up?

Using the investor-intelligence database of Motley Fool CAPS, I screened for stocks that were marked up by investors before their stocks began a run-up of 20% or more over the past three months. That underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned some 21 stocks, including these recent winners:

Source: Motley Fool CAPS screener; price return from May 2 close to July 28 close.

While that tells us which stocks we perhaps should have looked at three months ago, what we want are the stocks that we ought to be looking at today. So 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 whose prices haven't moved up over the past month by more than 10%.

Here are three stocks out of the 42 the screen returned that are still attractively priced, but which investors think are ready to run today!

Source: Motley Fool CAPS screener; price return from July 3 close to July 28 close.

Let's take a look at why investors might think these companies will go on to beat the market.

Chico's FAS
The first study to examine the effects of the government's stimulus program tells us that the rebate checks are having their desired impact, boosting spending 3.5%, with an increase of 4% in nondurable consumption expected this quarter. Unfortunately for retailers like Chico's FAS, consumers are using the money for nondurable goods like food, drug products, and other daily necessities, not for clothing and the like.

Chico's June sales report saw same-store sales plummet 16.4%, and total sales were down more than 8% from last year. The boost in nondurable spending would seem to bode well, however, for retailers like Wal-Mart (NYSE:WMT) which offer their customers a full range of products and services. But investors like CAPS member jemvaughn aren't particularly worried about Chico's, banking that it has the fashions that consumers will want when the economy turns:

The fashions here are still [attractive] to the person of moderate to above means. Many locations are near where people live. Out of "fashion" retailers, some will still make money, this one's product may make the difference.

Gramercy Capital
Without question it's been a long trip down for mortgage REIT Gramercy Capital, which specializes in first mortgages. The shifting sands of home values upon which its book value is built make it difficult to assess the stock, which may have played a part in the market selling off the company's shares when it reported second-quarter earnings that looked like the old Clint Eastwood spaghetti western The Good, the Bad, and the Ugly. Could be why CAPS member Sisyphos feels adrift:

The business model with [Gramercy] and AFR together is yet unproven so we are in uncharted waters. Yet when I read the company's material I see solid thinking covering a lot of angles. I also see a company that aims not to over reach, yet is looking for growth.

Time Warner
As is often the case, the spinoff gets saddled with debt while the parent gets a fresh start. While Joel Greenblatt has found such opportunities to be lucrative, some investors are eyeing Time Warner's spinoff of its cable division as a chance to finally realize the profitable parts of the parent's business as it dumps debt on its offspring. AOL has also been a drag and is about to head off into the sunset itself. CAPS member LonewolfNC sees sunshine:

Once the cable arm is sold off this company has little debt, powerful balance sheet and opportunities galore. It will probably buy a company or two, purchase some shares and hand out a handsome dividend.

Three for free
That's what investors are saying about these three stocks, but there are thousands of stocks in the universe and we haven't yet heard from you. Why not head over to the completely free CAPS service and let us hear what you have to say about these or any other stocks that you think are starting to rev their engines.