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 the market and investors have ignored.

But 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 moved strongly higher, before essentially trading sideways. My screen returned 160 stocks when I ran it, no doubt reflecting the market's continued recovery, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from July 2 to Sept. 28.

ProAssurance, in fact, was previously picked as a stock ready to run in June. 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 and that sported valuations lower than the market's average, with prices that hadn’t moved up over the past month by more than 10%.

Here are three stocks out of the 41 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 Sept. 4 to Sept. 28.

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.

Health Net
CAPS member proisback believes a government-run health insurance system will be a component in the final version of Obamacare, thus potentially dooming insurers like Health Net:

The PUBLIC OPTION will be part of the health legislation, and many people will feel this is bad for the medical insurers.

However, it's noteworthy that many such proposals are having a tough time making their way through the Senate. Although the insurers may yet get a second lease on life, many investors still consider their chances dubious.

Amerigroup
The same could be said, then, for Amerigroup and UnitedHealth (NYSE:UNH), although Amerigroup has something going for it that other insurers don't: It might thrive regardless of which way the legislation goes. It services two key groups that politicians love to advocate for: children and the elderly. Short of advocating the privatization of Social Security, there's no more certain road to re-election failure than cutting the benefits of old folks.

CAPS member vil811 also finds Amerigroup to be positioned for success:

Amerigroup manages Medicaid programs for a number of states.  They have done a reasonably good job at this, so more states will turn to this company to keep their Medicaid costs down. Keeping these costs down will be especially important during this current recession.

Computer Sciences
All-Star CAPS member wooderino believes Computer Sciences remains a profitable, successful company that the market still undervalues, citing "strong 5 year ROE & profit margin improvement and still at reasonable PE ratios."

With Dell and Xerox moving to shore up back-office services by snapping up Perot Systems and Affiliated Computer Services, respectively, in multibillion-dollar deals, analysts say Computer Sciences might also make an attractive target for another big player in the IT space.

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.