3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners. You can focus on stocks with a low price-to-earnings ratio, for example, or you can seek out 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 our analysts are able to stay ahead of the market with a strategy built around finding undervalued and ignored stocks.

Yet what if we could find a way to whittle down our list of prospects beforehand and find those whose engines are just getting warmed up?

Using the investor-intelligence database of Motley Fool CAPS, I screened for stocks that investors had marked up before they began an upward climb over the past three months, in a market that moved strongly higher before essentially trading sideways. My screen returned 123 stocks when I ran it and included these recent winners:

Source: Motley Fool CAPS screener; trailing performance from May 1 to July 27.

Psychiatric Solutions, in fact, was previously picked as a stock ready to run and was featured here in April. 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, that sport valuations lower than the market's average, and whose price hasn't moved up over the past month by more than 10%.

Of the 24 stocks the screen returned, here are three that remain attractively priced but that investors think are ready to run today.

Source: Motley Fool CAPS Screener; price return from July 2 to July 27.

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

Sunstone Hotel Investors
Luxury-hotel operator Sunstone Hotel Investors runs a portfolio of properties under license from Marriott, Hilton, InterContinental, Hyatt, and Carlson. Like spa and resort owner Vail Resorts (NYSE:MTN), there's more value in the land underfoot than the stock price would suggest. CAPS All-Star Tak3natheflood likes the depressed valuation as an entry point: "Selling at 1/3 of Book Value. This company is still generating a significant amount of sales in a tough environment to still build equity value by reducing their debt."

Wisconsin Energy
Even with rates set by regulators, public utilities such as Wisconsin Energy are becoming more attractive as a result of their relative underperformance compared with the market. The CAPS Utilities sector has fallen by more than 32% over the last year, compared with a 20% drop by the S&P 500. Wisconsin's dividend is yielding more than 3% and may end up seeing a payoff from its investments in wind energy.

Atlas Air Worldwide
While they say they're not aware of any attempts to take over the company, the folks at cargo freight operator Atlas Air Worldwide nevertheless adopted a shareholder-rights plan that would be triggered if someone acquired 15% of the company and attempted to acquire more. Earlier this year, starrider78 made a contrarian call on Atlas and subsequently achieved a score of 51. Our CAPS All-Star's willingness to bet on a sector's "getting clobbered" paid off.

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 have to say about these or any other stocks that you think are starting to rev their engines.