There are plenty of strategies for picking stock winners: Finding low P/E stocks, companies selling at a discount to their future cash flows, and more. Even in this market, the analysts at the small-cap stock-picking service Motley Fool Hidden Gems are able to stay ahead of the market 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 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 moved strongly higher before essentially trading sideways. My screen returned 154 stocks, no doubt reflecting the market's recovery, and included these recent winners:
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Stock
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CAPS Rating* Feb. 28, 2009
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CAPS Rating* May 28, 2009
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Trailing
13-Week Performance
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Atmel (Nasdaq: ATML )
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**
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***
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6.6%
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Hatteras Financial (NYSE: HTS )
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**
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***
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21.1%
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Triquint Semiconductor (Nasdaq: TQNT )
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**
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****
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62.7%
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Source: Motley Fool CAPS Screener; trailing performance from May 29 to Aug. 27. *CAPS ratings out of 5.
Hatteras Financial, in fact, was previously picked as a stock ready to run. 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. So I went back to the screener and looked for stocks that were just bumped up to three stars or better (five is the maximum number of stars any stock can earn), 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 29 the screen returned that are still attractively priced and that investors think are ready to run today!
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Stock
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CAPS Rating* May 28, 2009
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CAPS Rating* Aug. 27, 2009
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Trailing
4-Week Performance
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P/E Ratio
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GT Solar (Nasdaq: SOLR )
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**
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***
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(15.6%)
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8.3
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Roper Industries (NYSE: ROP )
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**
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*****
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1%
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17.4
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Synopsys (Nasdaq: SNPS )
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**
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***
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7.7%
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16.1
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Source: Motley Fool CAPS Screener; price return from July 31 to Aug. 27. *CAPS ratings out of 5.
Though 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 might think these companies will go on to beat the market.
GT Solar
PV equipment maker GT Solar has been heating up lately, despite the 11% fall over the past 30 days in the CAPS Solar Power sector. Top names like First Solar (Nasdaq: FSLR ) have dropped even more, down 28% for the month. As CAPS member mattro88 submitted in May, it's just a matter of time before solar stocks rotate back into favor:
Solar stocks are out of favor now, but eventually, as the price of oil rises and government green stimulus kicks in here and abroad, solar will rise again. GT Solar has a clean balance sheet and low p/e relative to peers. Giddyap!
Roper Industries
Roper Industries is a manufacturer of engineered products such as water meters, satellite communications hardware, and power plant equipment. The recession cut into all of its business segments and reported earnings fell 20% in the second quarter.
A few years ago Roper was growing through acquisitions, but has found the current economic climate more difficult to navigate. Yet like other industrial suppliers who may be the leading edge of an economic recovery, Roper may be one of the first to profit from it.
Synopsys
A full recovery might not come until the second half of 2010, but the semiconductor design cycle looks like it may have finally bottomed. While Synopsys has offered cautious guidance for the full year, its cash position remains strong and it was able to post pro forma earnings that beat both analyst and in-house expectations in the third quarter. That kind of meaty performance has attracted investors like CAPS member cfassett:
four or five bucks of cash on the balance sheet; no long term debt; stable, fairly valued company in a strong competitive position.
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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