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-stock picking service Motley Fool Hidden Gems, even in this market the analysts are able to stay ahead by finding undervalued stocks that the market and investors have ignored.
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 to move up over the past three months in a market that has headed south in a dramatic fashion. My screen returned 49 stocks when I ran it, and included these recent winners:
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Stock
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CAPS Rating 10/1/08
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CAPS Rating 1/1/09
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Trailing
13-Week Performance
|
|
Cray (Nasdaq: CRAY )
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**
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***
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75.0%
|
|
AllianceBernstein Income Fund (NYSE: ACG )
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**
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***
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0.1%
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|
Expedia (Nasdaq: EXPE )
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**
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***
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3.3%
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Source: Motley Fool CAPS Screener; trailing performance from Jan. 1 to March 31.
Expedia, in fact, was picked in December as a stock ready to roar back, and 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 CAPS stars or better, sporting 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 14 the screen returned that are still attractively priced and which investors think are ready to run today!
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Stock
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CAPS Rating 12/31/08
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CAPS Rating 3/31/09
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Trailing
4-Week Performance
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P/E Ratio
|
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First Industrial Realty (NYSE: FR )
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**
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***
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(2.4%)
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4.8
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Comtech Telecommunications (Nasdaq: CMTL )
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**
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***
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(31.3%)
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9.8
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HEICO (NYSE: HEI )
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**
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****
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5.9%
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13.8
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Source: Motley Fool CAPS Screener; price return from March 6 to March 31.
Although the results you get may be different, since the data is updated in real time, you can run your own version of this screen. Let's take a look at why investors think these three companies will go on to beat the market.
First Industrial Realty
Although CAPS member bsirola1 agrees that First Industrial Realty is ready to take off, the warehouse real estate investment trust (REIT) may find its growth opportunities put in storage if it can't refinance $125 million in debt coming due in June. Some analysts think that it may even breach its covenants if it can't arrange a refinancing deal, but management says it's looking to sell off or mortgage assets to raise the necessary cash. In a tight credit market either action might prove difficult.
Comtech Telecommunications
Despite the fact that satellite telecom operator Comtech Telecommunications saw year-over-year profit fall in the second quarter, it is expecting robust returns as a result of its acquisition of former Motley Fool Hidden Gems recommendation Radyne Comstream. CAPS member stockclouds agrees that it has the wherewithal to weather the turmoil. "Comtech has stamina and will catch up to his PR price tag. Just needs time due to the obvious weather of the market," says this investor.
HEICO
HEICO is a diversified parts maker, unlike fuselage and engine-housing maker Spirit AeroSystems (NYSE: SPR ) -- whose fortunes are closely tied to only two customers -- but even HEICO might find itself grounded this year if the FAA's expectations of an 8% drop in U.S. traffic come true.
But with HEICO supplying over half of all FAA-approved replacement parts sold worldwide (which aren't sold directly by original equipment manufacturers) it has a wide moat, justifying the support it has received from the CAPS community. Some 90% of those rating the parts maker think it will outperform the market, with an even greater percentage of All-Stars giving it the thumbs-up.
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 their engines?
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