There are plenty of strategies for picking investing winners, from finding low P/E stocks to seeking companies selling at a discount to their future cash flows. At our small-cap stock-picking service, Motley Fool Hidden Gems, analysts are able to stay ahead of the pack (even in this market!) by finding undervalued stocks that Wall Street and investors have ignored.
But what if we could whittle down our list of prospects beforehand, to find those whose engines are just getting warmed up?
Using our investor-intelligence database at Motley Fool CAPS, I screened for stocks that were marked up by investors before their share prices rose over the past three months. My screen returned 116 stocks when I ran it, no doubt reflecting the market's continued recovery, and included these recent winners:
|
Stock |
CAPS Rating , June 22 |
CAPS Rating, Sept. 22 |
Trailing 13-Week Performance |
|---|---|---|---|
|
Granite Construction (NYSE:GVA) |
** |
*** |
11.5% |
|
Santarus (NASDAQ:SNTS) |
** |
*** |
40.5% |
|
T. Rowe Price Group (NASDAQ:TROW) |
** |
*** |
19.9% |
Source: Motley Fool CAPS screener; trailing performance from Sept. 25 to Dec. 21.
Granite Construction, in fact, was previously picked as a stock ready to run just this past September. But while this screen might tell us which stocks we should have looked at three months ago, we'd rather find 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 that haven't appreciated by more than 10% in the past month.
Of the 26 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
|
Stock |
CAPS Rating, Sept. 14 |
CAPS Rating, Dec. 14 |
Trailing 4-Week Performance |
P/E Ratio |
|---|---|---|---|---|
|
CKE Restaurants (NYSE:CKR) |
** |
*** |
1.5% |
13.5 |
|
Dun & Bradstreet (NYSE:DNB) |
** |
**** |
4.9% |
13.3 |
|
Tech Data (NASDAQ:TECD) |
** |
*** |
8.6% |
13.9 |
Source: Motley Fool CAPS screener; price return from Nov. 27 to Dec. 21.
You can run your own version of this screen; just remember that the data's dynamically updated in real time, so your results may vary. That said, let's examine why investors might think these companies will go on to beat the market.
CKE Restaurants
Fast-food restaurant chain operator CKE Restaurants has felt the impact of the recession -- and related issues like unemployment and reduced discretionary spending -- particularly hard. The parent company of the Hardee's and Carl's Jr. burger joints hasn't been able to find the traction that McDonald's (NYSE:MCD) has with its value meals, although the burger-meisters are still doing better than casual and upscale venues.
Investors remain loyal to the chain, however, with 88% of the CAPS community rating CKE to outperform the broader market averages. You can bite into the burger bistro on CKE Restaurants' CAPS page and tell us whether this chain is a tasty morsel.
Dun & Bradstreet
Helped by its international segment, Dun & Bradstreet was able to report earnings above analyst estimates, in addition to higher-than-expected revenues. The company is in the process of evaluating businesses that can be divested so it can concentrate on high-margin activities, according to Zachs Consensus.
A wide competitive moat coupled with an ability to generate large, steady streams of free cash flow has CAPS member MagicDiligence finding the business information provider a conservative investment:
Dun & Bradstreet provides credit information on thousands of companies, as well as supplier and marketing data. This 160 year old company has a wide moat and strong cash flow, and makes a good conservative choice for a Magic Formula portfolio.
Tech Data
Despite substantial competition, Tech Data has managed to stand out in the third quarter. It announced better-than-expected earnings and also provided positive revenue guidance for the fourth quarter.
Highly rated CAPS All-Star member mrindependent looks at the information technology and logistics provider‘s strong financial footing and sees a long-term winner:
The company sells information technology and logistics management worldwide. The company's long term return on equity is a dismal 4%, but downside risk seems limited due to the company's conservatively financed balance sheet and the fact that the company is priced at 1.04 times book value.
Three for free
Are these companies still a good value and ready to make their move? I'm heading over to CAPS to mark them to outperform the broader averages. If you agree, join me there, or let us know what you think in the comments section below.
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 on 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.
