3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners. You can focus on stocks that have low price-to-earnings ratios, for example, or on stocks selling at a discount to their future cash flows. At the small-cap stock-picking service Motley Fool Hidden Gems, our analysts are able to stay ahead of the market, even in the current environment, 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, to find the stocks 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 their rally began over the past three months, in a market that moved strongly higher before essentially trading sideways. My screen returned 145 stocks when I ran it, no doubt reflecting the market's recovery, and included these recent winners:

Source: Motley Fool CAPS screener; trailing performance from May 8 to Aug. 7.

In fact, ACE was a previous pick as a stock ready to run and was featured here in May. 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 carry valuations lower than the market's average, and that sport prices that haven't moved up over the past month by more than 10%.

Here are three stocks out of the 15 the screen returned that are still attractively priced but that investors think are ready to run today:

Source: Motley Fool CAPS screener; price return from July 10 to Aug. 7.

Though the results you get may be different, since the data is dynamically updated in real time, you can run your own version of this screen. But let's take a look at why investors might think these companies will go on to beat the market.

Comtech Telecommunications
The market is a forward-looking arena, and Comtech Telecommunications gave it a pair of binoculars to see into 2010. Despite a 7% decline in revenues during the third quarter, Comtech says its backlog positions it for "dramatic growth" next year. And with $450 million in cash ready to deploy, it is a financially strong and stable force. The CAPS community agrees, with 94% of those rating Comtech marking it to outperform the market, while 96% of the All-Star members have come to a similar conclusion.

DynCorp International
As the Taliban gains strength once again in Afghanistan, military-service provider DynCorp International could be a beneficiary. It has contracts to build barracks and oversee the eradication of poppies, along with more mundane tasks like taking care of laundry duty, pumping gas, and feeding soldiers. Like Fluor (NYSE:FLR), which hopes to gain additional contracts later this year, DynCorp has similarly lucrative deals in place for Iraq.

Although those services seem innocuous enough, some investors are taken aback by DynCorp's role as a security contractor in the war-torn countries. CAPS member TRGoodvsEvil has been highlighting a number of companies that he contends are "evil" as a result: "Private security contractors have become the fastest-growing sector of the global economy during the last decade -- a $100-billion-a-year, nearly unregulated industry. DynCorp, one of the providers of these mercenary services, demonstrates the industry's power and potential to abuse human rights."

Rehabcare
Concerns have subsided that Rehabcare would need therapy of its own if President Obama's health-care reform proposals become a reality. Some analysts now view the company, which specializes in physical rehabilitation management services, as gaining market share, since hospitals might start sending more patients its way. That's a prescription for growth for CAPS member pstrifler:

Picked this one up on downturn. Always spending in health care, and rehabilitation is the ticket. If you get hurt, they stick you in rehab until you recover. If you get old, they park you in a rehab until you get younger, or well enough to go home. All homes have a rehab function/wing.

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. 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.