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.

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 marked up before their stocks began to climb over the past three months in a market that moved strongly higher before essentially trading sideways. My screen returned 175 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 June 5 to Sept. 4.

Fresh Del Monte Produce, in fact, was previously picked as a stock ready to run 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, 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 38 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 Aug. 7 to Sept. 4.

You can run your own version of this 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.

Cell Therapeutics
This biotech has already enjoyed a phenomenal run, yet investors are expecting Cell Therapeutics to make another go of it. With its cancer therapy pixantrone under FDA consideration for approval, CAPS member libertybrewcity is expecting it to ignite the afterburners: "The new drug is about to go into phase 3 and the stock will explode!"

Dun & Bradstreet
While the recession has eaten into a lot of its clients, highly rated CAPS All-Star coryjobe finds business information provider Dun & Bradstreet instituting smart cost savings measures while expansion into Asia "has helped the company offset downturn demand in north America and western Europe."

Considered the Moody's (NYSE:MCO) of private firms (indeed, Moody's was spun off from D&B earlier this decade), it has generated prodigious amounts of free cash flow with a competitive moat protecting it from rivals taking any significant share.

SCANA
With natural gas prices continuing to fall and electricity demand showing no signs of increasing anytime soon, it's not surprising that South Carolina-based utility SCANA hasn't generated the profits of prior years. Yet net income fell only 3% even as it lost a quarter of its revenues. SCANA's nuclear option had CAPS member NuclearElvis giving the company a glowing endorsement last year:

Will benefit from nuclear power expansion. Already has a deal locked to build another nuclear power plant, and I estimate that at least one or two more nuclear plants will be built by them within 5-10 years. Regardless, their natural gas sales alone will keep them on pace or ahead of the S&P 500.

South Carolina's government-owned utility, Santee Cooper, dropped plans for a coal-fired plant not only because of looming regulatory concerns but also because it has a deal with SCANA to build a new nuclear plant.

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.