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 stock-picking 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 142 stocks, no doubt reflecting the market's continued recovery, and included these recent winners:

Source: Motley Fool CAPS screener; trailing performance from Oct. 9 to Jan. 8.

Cell Therapeutics, in fact, was picked as a stock ready to run just this past September. 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 43 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 Dec. 11 to Jan. 8.

You can run your own version of this screen; 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.

Pall
Water filtration specialist Pall looks like it's heating up after recently rising off its five-year strategic growth plan. It has more than 10,000 employees and a $2.3 billion market valuation, belying its sleepy appearance. Only 130 or so CAPS members have rated the company thus far. Although it services the pharmaceutical, health-care, and energy industries, crashsurvivor09 looks to the company's municipal water treatment capabilities as a reason to believe in its growth prospects:

One of Pall's biggest opportunities for growth is in the drinking water treatment market. Most municipalities and water authorities in the United States have scaled back plans based slower growth. However, the need for effective water treatment and the resulting improvement to the quality of life in foreign markets holds great growth potential for this company.

Ross Stores
A recession would seem to be an excellent time for an off-price retailer like Ross Stores to make its mark, as it's not just big-box discounters and dollar-store chains that have benefited from consumers looking to stretch their wallets. Ross' smaller size compared to The TJX Companies (NYSE:TJX) is attracting investors like CAPS member mtinvest, who view that as a competitive advantage.

The McGraw-Hill Companies
Textbook publisher and information services provider McGraw-Hill Companies is expecting larger school enrollments and improved credit markets to help make 2010 a better year. However, its Standard & Poor's division is one of the ratings agencies embroiled in the collapse of the financial markets, as it assigned high marks to investments that ended up defaulting.

McGraw-Hill itself earns high marks from investors, though, as 92% of the nearly 500 CAPS members rating the company believe it will outperform the markets. Why not give your reading on the McGraw-Hill Companies CAPS page?

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 (or if you don't!), join me there, or let us know in the comments section below what you think.

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 on 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.