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, even in this market, the analysts are beating the market by 10 percentage points by finding undervalued stocks that both Wall Street and investors have ignored.

But what if we could whittle down our list of prospects beforehand, in search of stocks 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 rise over the past three months, in defiance of an overall market plunge. The apparent link between these stocks' CAPS ratings and subsequent gains underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned just 49 stocks, including these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from Oct. 17 to Jan. 14.

That tells us which stocks we perhaps should have looked at three months ago -- appropriately enough, both Chicos and Stantec were previously picked as stocks to watch here. But we'd rather find the stocks we ought to be looking at today. So I went back to the screener and searched for stocks that just rose to three stars or better, sport valuations lower than the market's average, and haven't risen in value more than 10% in the past month.

Out of the 51 ideas the screen returned, these three stocks are still attractively priced, but investors nonetheless think they're ready to run today:

Source: Motley Fool CAPS Screener; price return from Dec. 19 to Jan. 14.

Though your results may vary, since the data is dynamically updated regularly, you can run your own version of the screen. For now, let's see why investors might think these companies will go on to beat the market.

AK Steel
Steel demand may be slack now, depressing the prices of companies like Nucor (NYSE:NUE) and AK Steel. But CAPS member funkywizard thinks you need to look further out to see that AK Steel is undervalued now: "In a position to rebound greatly along with increased demand from china over the next 2 years, this stock is selling for a pitance at current PE ratios."

Questcor Pharmaceuticals
Top-rated CAPS All-Star member zzlangerhans likes the look of Questcor Pharmaceuticals -- a small, profitable niche biotech that has been trading down lately:

Questcor is a profitable biotech with a market cap less than half a billion, which provides the stock with some downwind support. Lately they've been trading in a narrow range of which they are currently at the low end. This is a short-term trend pick looking for about ten points and a positive accuracy.

Computer Sciences
COOLSTOCK cites the long history and worldwide footprint of IT outsourcing specialist Computer Sciences in arguing for its continued success: "[Computer Sciences'] decades of experience in consulting, systems integration, and outsourcing enable us to deliver innovative results-driven solutions to government and commercial clients around the world. outsourcing information."

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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