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, even in this market the analysts are beating the market by seven 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 to move up over the past three months in a market that has headed south in a dramatic fashion. That underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned just 12 stocks when I ran it, which suggests how difficult a time it's been, and included these recent winners:


CAPS Rating 6/26/08

CAPS Rating 9/26/08


13-week Performance

Amerigroup (NYSE:AGP)




Annaly Capital Management (NYSE:NLY)




FGX International (NASDAQ:FGXI)




Source: Motley Fool CAPS Screener; trailing performance from Sept. 26 to Dec. 24.

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 29 the screen returned that are still attractively priced but which investors think are ready to run today!


CAPS Rating 9/26/08

CAPS Rating 12/24/08

4-Week Performance

PE Ratio






Estee Lauder (NYSE:EL)





Steinway Musical Instruments (NYSE:LVB)





Source: Motley Fool CAPS Screener; price return from Nov. 28 to Dec. 24.

Though the results you get may be different since the data is updated in real time, you can run your own version of the screen. Let's take a look at what investors are saying about some of these companies.

The effects of the recession on the tourism and entertainment industry have been particularly acute, but that has created a discount environment that CAPS All-Star ValueMrk thinks will benefit Expedia. Last month's pitch: "With deep discounts and promotions expect Expedia to be a godsend to people wanting to travel."

Estee Lauder
While the phrase "putting lipstick on a pig" got a workout in the recent presidential campaign, it turns out that women are more willing to put lipstick on themselves when the economy turns sour. That's a move that might benefit cosmetics queens Revlon (NYSE:REV) and Estee Lauder. CAPS member mitleg would undoubtedly agree, though back in August this investor presciently saw that Estee Lauder had gotten a little ahead of itself:

This is a good company. Revenue has been a little choppy [in] the recent past. There will always be a demand for makeup. The valuation has gotten a little rich. I think it is due for a slight pullback. I think it might be fine to get into after that.

Steinway Musical Instruments
While some may need to face the financial music in a recession, CAPS member mtnv110960 thinks investors will find solace in the music of Steinway Musical Instruments returns: "During these odd financial times people turn to the arts and send their kids there with hopes of reality"

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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Annaly Capital Management is a Motley Fool Income Investor recommendation. Amerigroup is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.