3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners, from finding low P/E stocks to seeking companies selling at a discount to their future cash flows. At the small-cap investment service Motley Fool Hidden Gems, even in this market, the analysts are able to stay ahead of the pack by finding undervalued stocks that Wall Street and investors have ignored.

But what if we could whittle down our list of prospects beforehand, to find those whose engines are just getting warmed up?

Using our investor intelligence database at Motley Fool CAPS, I screened for stocks that were marked up by investors before their share prices rose over the past three months. My screen returned just 98 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from June 18 to Sept. 13. CAPS rating is out of five stars.

Fuel Systems Solutions, in fact, was previously picked as a stock ready to run in June, and represented a period when the market rose by less than 1%. But while this screen might tell us which stocks we should have looked at three months ago, we'd rather find 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, sport valuations lower than the market's average, and haven't appreciated by more than 10% in the past month.

Of the 54 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:

Source: Motley Fool CAPS Screener; price return from Aug. 13 to Sept. 8. CAPS rating is out of five stars.

You can run your own version of this screen over on CAPS; just remember that the data are dynamically updated in real time, so your results may vary. That said, let's examine why investors might think these companies will go on to beat the market.

Boise
Analysts are looking for improving fundamentals in the paper and forest products sector, which has stabilized. Inventories are low, demand steady, and manufacturing capacity tight, helping to boost the prospects of industry giant International Paper (NYSE: IP) as well as Boise and Temple-Inland.

A month ago, CAPS member WPThatcher liked that Boise was trading for less than book, and even with shares up 10% since then, it still offers a discount:

Trading for less than book value. Still, it has large, but manageable debt load, due to a restructuring last year. Strong insider ownership.

Gleacher & Co.
Boutique investment shop Gleacher & Co. doesn't roll off the tongue as easily as Blackstone (NYSE: BX) or Piper Jaffray, but this management team has developed a following on CAPS that has allowed 87% of those rating its stock to think it's an investment worth making.

All-Star member Seansonfire explained earlier this summer that Gleacher is in the midst of a turnaround program, and with the current M&A boom under way, it ought to prosper as a result:

Basically it was somewhat of a messy ordeal, but it is over and behind the company. The new company is starting to build an much more structured Investment Bank, bringing in outside talent to augment the current leadership. The company will no doubt profit from the upcoming Post-Recession M&A action that is starting on wall street.

MasterCard
Both MasterCard and Visa (NYSE: V) have hit new 52-week lows in recent days as investors worry the Federal Reserve will hit them with new regulations limiting how much they can charge vendors for processing debit card transactions. Some worst-case scenarios see a 60% to 80% drop in debit revenues.

While there are short-term risks and uncertainties, CAPS member TepperJason takes a longer look at their business and sees them prospering:

I like MA to outperform the S&P 500 over the next few years. We're moving to a cashless society where people use debit or credit cards for most transactions. The main competitor is Visa. I wouldn't even call them a competitor, it's more like Visa and Mastercard just divide the business and don't fight each other. It's a smart move, don't get in a price war when there are only two of you and the barriers to entry are high.

Three for free
Are these companies still a good value and ready to make their move? I'm heading over to CAPS to mark them to outperform the broader averages. If you agree, join me there, or let us know in the comments section below whether you think these or any other stocks are starting to rev their engines.

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