3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners: low P/E stocks, companies selling at a discount to their future cash flows, and more. At the small-cap stocks service Motley Fool Hidden Gems, the analysts are beating the market by six percentage points 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, finding those stocks whose engines are just getting warmed up?

Using the Motley Fool CAPS investor intelligence database, I screened for stocks that investors had marked up before their prices began to move up over the past three months in a market that has headed south in dramatic fashion. That underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned just 14 stocks when I ran it, which suggests how difficult a time it is, and included these recent winners:

Stock	CAPS Rating May 28	CAPS Rating Aug. 28	Trailing 13-week Performance
ITT Educational Services (NYSE: ESI)	**	***	1.1%
Family Dollar (NYSE: FDO)	**	***	16.5%
Casey's General Stores (Nasdaq: CASY)	**	***	3.3%

Source: Motley Fool CAPS Screener; trailing performance from Aug. 29 to Nov. 26.

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 just bumped up to three stars or better, sport valuations lower than the market's average, and whose price hasn't moved up over the past month by more than 10%.

Here are three stocks out of the 44 the screen returned that are still attractively priced, and some investors think they're ready to run.

Stock	CAPS Rating Aug. 26	CAPS Rating Nov. 26	Trailing 4-Week Performance	P/E Ratio
Bally Technologies (NYSE: BYI)	**	***	(16.9%)	9.2
Navistar (NYSE: NAV)	**	***	(28.2%)	6.6
NorthWestern (NYSE: NWE)	**	***	2.7%	11.9

Source: Motley Fool CAPS Screener; trailing performance from Oct. 31 to Nov. 26.

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

Bally Technologies
Sometime in the 1960s, Bally Technologies supplied 90% of the slot machines found in Las Vegas casinos. But by diversifying away from gaming, it missed out on the gambling boom of the 1990s and lost ground to its competitors. New management has refocused the company on gaming, and CAPS member hansthered0 recently figured it will capitalize on virtual reality.

I like this stock because I think they are well positioned for the virtual reality gaming explosion soon to come.

Not only that, but while this stocks price has increased by just over 50% this year I don't think the market has yet priced in the new levels of profitability. The increase shown in the first quarter of 08' was 36% more sales AND 3 TIMES more profitability. That makes a world of difference.

Navistar
While top-rated CAPS All-Star TMFDitty finds Navistar deep in debt, he feels the price has become so discounted as to make it attractive. A joint venture with BAE Systems for a new military truck might have Northrop Grumman (NYSE: NOC) seeing red, and though BAE Systems received a bigger chunk of the Army contract than Navistar did, the project may still generate the green that Navistar needs to succeed.

Yes, the debt load is obscene. True, too, rival BAE just swiped a big armored vehicle order. But the P/E is too low for logic on this one, and I get a BOTEV valuation close to $12 billion, suggesting it's about 20% undervalued. If Navistar can do a bit of debt paydown, I bet we'll see that P/E expand a bit.

NorthWestern
Perhaps because it operates in the Big Sky country of Montana, natural gas utility NorthWestern doesn't generate the same level of interest among investors as other players in the industry, but earlier this year, CAPS member stoggit noted that it had potential.

Solid fundamentals, and awarding shareholders with a nice dividend and share repurchase.

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 and let us hear what you've got to say about these or any other stocks that you think are starting to rev up.