3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners: low P/E stocks, companies selling at a discount to their future cash flows, and more. At the small-cap stock picking service Motley Fool Hidden Gems, the analysts are beating the market by 19 percentage points 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 a run-up of 20% or more over the past three months. That underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned some 30 stocks when I ran it and included these recent winners:

Source: Motley Fool CAPS Screener; price return from July 3 close to Sept. 29 close.

While that tells us which stocks we perhaps 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 just bumped up to three stars or better, sport 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 68 the screen returned that are still attractively priced but which investors think are ready to run today!

Source: Motley Fool CAPS Screener; price return from Sept 5 close to Sep 29 close.

Let's take a look at why investors might think some of these companies will go on to beat the market.

Wells Fargo
Despite the hand-wringing over the state of the financial markets, there are actually some banks that are all right in this market and Wells Fargo is one of them. It has been a conservatively run bank that avoided much of the subprime market meltdown and has thus remained afloat. It may have also been the reason Citigroup (NYSE:C) emerged as the buyer of Wachovia's assets instead of the anticipated Wells Fargo deal. A bank spokesman said, "Our acquisition rules are simple. We use conservative assumptions and acquire only what will benefit our stockholders." Those rules are what CAPS All-Star member jstegma likes about Wells Fargo, noting that a bank's reputation is the only thing you can bank on:

Surviving economic events like this credit crunch is how banks earn their reputations. Wells Fargo has increased its reputation while many other banks have failed. Reputations are worth a lot in the banking industry, and I think the stock price will eventually reflect that.

Thor Industries
An RV maker is not exactly the kind of business you'd expect to be able to survive an economic downturn like this. However, CAPS member Awebb30 views Thor Industries' expansion of its public transportation business as a key to future growth:

Aside from the RV market, the near-term opportunity available to Thor is in Commercial Busses as the world looks to expand on more efficient public transportation options. Currently, only 15% of Thor's annual sales come from their Bus lines, but I expect that to increase substantially as gas and diesel prices remain high.

Jackson Hewitt
In June, CAPS member OutstandingOdds commented on how the highly fragmented tax prep market provides one of the growth drivers for Jackson Hewitt -- and investors get to enjoy a healthy dividend payout while waiting:

Despite the recent turmoil [Jackson Hewitt] is still a great business with little capital requirements, good growth potential, not to mention a huge addressable (& highly fragmented) market. Current negative sentiment makes it impossible to know how [Jackson Hewitt] will do over the next few months, but at today's prices patient investors with an eye toward the long term should enjoy outsized, risk-adjusted returns over the next 3-5 yrs

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.

On Oct. 7, 2008, Fool Co-Founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.