3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners, from finding low P/E stocks to seeking companies selling at a discount to their future cash flows. At the small-cap investment service Motley Fool Hidden Gems, even in this market, the analysts are able to stay ahead of the pack 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 investors had marked up before their share prices rose over the past three months. My screen returned just 91 stocks when I ran it, no doubt reflecting the market's turmoil, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from May 28 to Aug. 25.

China Yuchai, in fact, was picked as a stock ready to run in May. But while this screen might tell us which stocks we should have looked at three months ago, we'd rather find the stocks we ought to be looking at today. I went back to the screener and looked for stocks that were recently bumped up to three stars or better, sport valuations lower than the market's average, and haven't appreciated by more than 10% in the past month.

Of the 71 stocks the screen returned, here are three that are still attractively priced, but which some investors think are ready to run today:

Source: Motley Fool CAPS Screener; price return from July 30 to Aug. 25.

You can run your own version of this screen over on CAPS; 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.

Aixtron
German semiconductor specialist Aixtron is banking on a boom in the LED market to further boost its growth. But it was hurt when Cree (Nasdaq: CREE) offered disappointing guidance for its first fiscal quarter, saying demand for LEDs in the consumer electronics sector -- primarily in LCD TVs -- is expected to be weak. I've said before, however, that China could be a wild card here.

CAPS member irvingfisher says the various phases of growth for LEDs will lead to profits for Aixtron no matter what.

AIXG makes machinery for the fabrication of LED lights. Currently, the growing market ... for LED lights is for backlighting LCD TVs. This is phase II of the LED market booms (the first phase being back lighting for LCD screens for small devices, like cell phones). Phase III is LEDs for conventional lighting (replacing CLF, incandescent, and halogen light bulbs). If phase III overlaps phase II, that'll be big. IF not, AIXG will still grow to benefit from phase II, then revenues will drop until phase III arrives.

JPMorgan Chase
Anyone reading Daniel Loeb's latest letter to Third Point shareholders know that he believes the rules of the game have been rigged in favor of big financial institutions like JPMorgan Chase and Goldman Sachs (NYSE: GS). Interesting, because even JPMorgan's Jamie Dimon says he feels like Washington has bitten the hand that has fed it, becoming yet another executive -- Intel's Paul Otellini recently talked about Washington's anti-business posture -- who feels capitalism is under attack.

CAPS All-Star anontmp writes about why JPMorgan will weather any storm.

JPM is recovering from the crisis and will grow earnings quickly. At the same time, it should be relatively [resilient] to any downturn due to better risk management and [its] consumer banking exposure.

Xcel Energy
CAPS member sajmanaz figures that with the horrible cap-and-tax legislation floundering, utility stocks are value priced, and according to some metrics, you'll find Xcel Energy among the most undervalued utilities on the market.

cap and trade is dead utilities become a safer bet now

Head over to the Xcel Energy CAPS page and let us know what you think about this utility.

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 in the comments section below whether you think these or any other stocks are starting to rev their engines.