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3 Stocks Set to Soar

Rich Duprey
October 8, 2012

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. 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 49 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:


CAPS Rating March 7, 2012

CAPS Rating July 6, 2012

Trailing-13-Week Performance

Exterran Holdings ** *** 49.2%
Quiksilver ** *** 42.2%
Keryx Biopharmaceuticals ** *** 41.2%

Source: Motley Fool CAPS Screener; trailing performance from June 1 to Aug. 31.

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


CAPS Rating July 5, 2012

CAPS Rating Oct. 5, 2012

Trailing-4-Week Performance

P/E Ratio

Rent-A-Center (Nasdaq: RCII  ) ** *** (0.7%) 12.0
Smith & Wesson Holding (Nasdaq: SWHC  ) ** *** 1.5% 15.5 (Nasdaq: STMP  ) ** *** (1.5%) 9.2

Source: Motley Fool CAPS Screener; trailing performance from Aug. 3 to Aug. 31.

You can run your own version of this screen over on CAPS; just remember that the data's 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.

Unemployment might have miraculously tumbled to 7.8% in an October surprise, but this was largely due to a surge in part-time jobs for economic reasons, meaning people can't find full-time work, the economy's still a mess, or demand is low -- or all of the above. Such conditions mean companies that cater to the unemployed or underemployed like Rent-A-Center and Aaron's ought to thrive. With their target demographic having annual incomes between $15,000 and $50,000 and generally lacking access to credit, there's a large market opportunity for the rent-to-own industry to grow.

Wall Street is certainly bullish on the prospects, as all 10 analysts weighing in on Rent-A-Center and tracked by CAPS think it will beat the market indexes, but you can tell me in the comments box below whether you think the economy's improving enough that the rent-to-own industry will ultimately see demand slacken.

Smith & Wesson Holding
It was pretty much those same economic conditions that had gun maker Smith & Wesson Holding s