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 our small-cap stock-picking service, Motley Fool Hidden Gems, the analysts are able to stay ahead of even this market by finding undervalued stocks that are being 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. My screen returned 123 stocks when I ran it, including these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from Nov. 21 to Feb. 17.

Both Xerox and Alpha Natural Resources were previously picked as stocks ready to move back in October and December, respectively. So while this screen might tell us which stocks we should have looked at three months ago, what we want are 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, sporting 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 50 the screen returned that are still attractively priced, but that investors think are ready to run today!

Source: Motley Fool CAPS Screener; price return from Jan. 23 to Feb. 17.

You can run your own version of the screen (though the results you get may be different, since the data is dynamically updated in real time). But let's take a look at why investors might think these companies will go on to beat the market.

World Fuel Services
Juggling the financing and logistics of marine and aviation fuel procurement has become a valuable proposition for World Fuel Services. Volatility in the oil markets has customers seeking it out to find the best prices available, while the tight credit markets have caused them to line up for its unsecured financing terms. CAPS member ejpavlik simply liked the company’s valuation at the beginning of the year:

Low debt/equity (0.06), reasonably low PE (12-13). Price is correcting to Jan07 levels.

National Financial Partners
Since it’s a distributor of life insurance and financial services to the wealthy, concerns about National Financial Partners running out of cash have been raised. But the company amended its covenants somewhat in December and was able to post quarterly profits that beat estimates on the strength of growing margins. CAPS member samdeva thinks National Financial will continue to have an important role as the financial markets remain confused:

Financials took huge beating in 2008. [National Financial Partners] took the beating along with other companies however, [It] doesn't own toxic assets like others. Its in the advisory business, which will continue to be needed by customers in the ever confusing financial environment.

QLT
QLT was hit with a lawsuit by Massachusetts General Hospital over royalties for Visudyne, a macular degeneration therapy for which it partnered with Novartis (NYSE:NVS). The lawsuit sent its stock into a tailspin, but CAPS All-Star member TMFBreakerJava thought the prospects for improving valuation remained strong for this biotech at the end of December:

This biotech company is trading for less than cash. They have a business line up for sale, make money now and will break even after they sell it. They have some clinical milestones coming up this year that could materially improve their prospects. The value of this stock is two or three times the current price, which gives a nice margin of safety.

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. 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.