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 able to stay ahead of even this market 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 they began to move up over the past three months, in a market that moved strongly higher before essentially trading sideways. My screen returned 174 stocks when I ran it, no doubt reflecting the market's recovery, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from May 1 to July 31.

Guess?, in fact, was previously picked as a stock ready to run and was featured here in May. 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 sported valuations lower than the market's average, and that had prices that hadn't moved up over the past month by more than 10%.

Here are three stocks out of the 19 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 July 2 to July 31.

Though 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 take a look at why investors might think these companies will go on to beat the market.

Pitney Bowes
With the economy on the mend, it looked like Pitney Bowes would see greater business activity, which could boost sales of its mail-processing services. But due to a slowdown in international markets and the slow recovery of mail-intensive industries such as financial services, Pitney Bowes had to cut its earnings guidance for the year. Following the announcement, shares tumbled by 12%. However, now that the stock trades just above eight times expected earnings, the Motley Fool Income Investor recommendation yields 7%. That hefty payout attracted CAPS member dubblebubbler in May:

The market is hitting a short term top and you may see a rotation into safer plays. I'm in the minority during these rally days ... but I say that boring stocks (utilities, staples, telecom) with fat safe divis are underrated. Long [Pitney Bowes] with put protection.

FirstEnergy
Declining business activity in the steel and automotive industries affected the results of FirstEnergy, the fifth-largest publicly traded electric utility. With operations in Ohio, Pennsylvania, and New Jersey, it's not surprising that the steel industry plays a large role in the company's fortunes, yet it was still able to beat earnings expectations thanks to increased efficiencies and cost reduction. At almost 11 times earnings, FirstEnergy trades at a small discount to Public Service Enterprise Group, another regional player, and CAPS member RLBOWERSOX thinks it's just a matter of time before the well-managed FirstEnergy stages a comeback: "Share price down over 30% for me. It has always come back. Diversified energy sources. Well-managed."

BJ's Wholesale Club
The back-to-school season will mean going back to the drawing board for many retailers, including big-box stores such as BJ's Wholesale Club and Costco Wholesale (NASDAQ:COST). July retail sales seem poised to be down again, as they were in June, and it doesn't seem like a recovery is too near. This year's lower gas prices have hurt sales numbers at both BJ's and Costco, since both sell fuel. In addition, a lack of tax-free shopping holidays has hurt retailers in the second quarter. Five analysts expect BJ's Wholesale to experience a 6.8% decrease in comps, while one anticipates that, after subtracting gasoline, the company could actually increase its same-store sales. While the gallon jugs of mayonnaise are a definite discount at BJ's, it's possible that its shares could be as well.

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?