There are plenty of methods for picking stock winners. Investors can focus on stocks with a low price-to-earnings ratio, or on companies that sell at a discount to their future cash flows, among other strategies. At our small-cap stock-picking service, Motley Fool Hidden Gems, the analysts are able to stay ahead of the market, even in the current conditions, by finding undervalued stocks that the market and investors have ignored.
Yet what if we could find a way to whittle down our list of prospects beforehand and find those whose engines are just getting warmed up?
Using the investor-intelligence database of Motley Fool CAPS, I screened for stocks that investors marked up before they began to move up over the past three months, in a market that has headed south in a dramatic fashion. My screen returned 34 stocks and included these recent winners:
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Stock
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CAPS Rating, 9/9/08
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CAPS Rating, 12/9/08
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Trailing 13-Week Performance
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Baidu.com (Nasdaq: BIDU )
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**
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***
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36.0%
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Agnico-Eagle Mines (NYSE: AEM )
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**
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***
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23.8%
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BCE (NYSE: BCE )
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**
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***
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8.9%
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Source: Motley Fool CAPS screener; trailing performance from Dec. 12 to March 9.
BCE, in fact, was selected as a stock ready to run back in December, and it has lived up to that promise so far. So while this screen might tell us which stocks we should have looked at three months ago, what we want are 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, that have valuations lower than the market's average, and whose price hasn't moved up over the past month by more than 10%.
Of the 51 stocks that this screen returned, here are three that are still attractively priced but that investors think are ready to run today:
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Stock
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CAPS Rating, 12/9/08
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CAPS Rating, 3/9/09
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Trailing 4-Week Performance
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P/E Ratio
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Comstock Resources (NYSE: CRK )
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**
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***
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(29.2%)
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4.9
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TeleTech (Nasdaq: TTEC )
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**
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***
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6.7%
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8.1
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comScore (Nasdaq: SCOR )
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**
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***
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(3.7%)
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9.9
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Source: Motley Fool CAPS screener; return from Feb. 13 to March 9.
You can run your own version of the screen if you like. Just be advised that the results you get may be different, since the data is dynamically updated in real time. And for now, let's look at why investors might think these companies will go on to beat the market.
Comstock Resources
The Haynesville shale formation offers Comstock Resources a lot of long-term potential, even if some other players, such as Petrohawk Energy (NYSE: HK ) , aren't using the same sort of value creation efforts. All-Star CAPS member FiddyPop says Comstock focuses on one area and does it well:
[Comstock Resources] is a debt free oil and gas producer, mainly natural gas. They are in some of the main plays with Chesapeake, but CRK doesn't have bank debt (and they don't issue stocks to speculate on emerging plays). This company has been around for a long time, and they do only one thing -- Oil and Gas exploration and production. I'm still bullish on natural gas producers, and I'm also rating XTO and EOG as outperform.
TeleTech
Back in December, another CAPS All-Star, tenmiles, said that even though the outsourcing business is highly competitive, TeleTech's cash-generating capabilities make it one to outperform the markets.
Outsourcing is [a] tough, competitive landscape today, but I would use today's downgrade to initiate long on TeleTech around $6.88. Historical upper teen [return on equity], [significant] free cash flow generation with … [debt-to-equity ratio] of less than .30 [and] trading at about 10% premium to book -- looks like strong long term value, but could easily go a buck lower before final bottom.
comScore
Although data tracker comScore offers insights into everyone else's business, it recently engaged in some navel-gazing and found that even if its ability to upsell services to clients was lower than typical, it still projects revenue growth of 15% this year and has $75 million in cash sitting in its coffers, should any unforeseen crises arise. With revenue growth in the fourth quarter slightly below analyst expectations, the market analyst was able to pad its score of customers and now sports more than 1,160 clients.
Three for free
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Why not head over to the completely free CAPS service? Let us hear what's on your mind about these or any other stocks that you think are starting to rev their engines.
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