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 were marked up by investors before their share prices rose over the past three months. My screen returned just 127 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:


CAPS Rating 4/27/10

CAPS Rating 7/27/10

Trailing 13-week Performance

eBay (Nasdaq: EBAY)












Source: Motley Fool CAPS Screener; trailing performance from July 30 to Oct. 27.

eBay, in fact, was previously picked as a stock ready to run in July, and represented a period when the market rose by more than 7%. 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, sport valuations lower than the market's average, and haven't appreciated by more than 10% in the past month.

Of the 45 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:


CAPS Rating 7/22/09

CAPS Rating 10/22/10

Trailing 4-Week Performance

P/E Ratio

Alpha & Omega Semiconductor (Nasdaq: AOSL)





J. Crew (NYSE: JCG)





Penwest Pharmaceuticals (Nasdaq: PPCO)





Source: Motley Fool CAPS Screener; price return from Oct. 1 to Oct. 27.

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.

Alpha & Omega Semiconductor
Power-management chipmaker Alpha & Omega Semiconductor is a recent IPO. Like fellow analog chipmaker MaxLinear (also new to the public markets this year), A&O has had a hard go of it. Analysts haven't been surprised, since they were expecting the rising cost of silicon wafers to hit margins, but the results A&O  reported yesterday reveal that the company was still able to push those margins higher by selling more of its power integrated circuit products.

Highly rated CAPS All-Star member allstarvulture thinks Wall Street sold off the stock too early:

Beaten down on a downgrade prompted by Deutsche Bnk based on increasing costs of operations. But they have recorded two straight quarters of record revenue and are projecting about an 8% increase into next year. Not bad for a young company, and worth a green thumb based on an overdone sell off.

J. Crew
Rising costs have plagued J. Crew, prompting analysts to cut their outlook for the retailer as well. Warmer weather this fall, along with a need to be more promotional to attract shoppers, could put profit margins under serious pressure. Consumer consumption was up in the third quarter, though consumer confidence is slipping.

Fashion faux pas can really hurt, though, and J. Crew's "hairy tights" might not be the statement the company wanted to make. They're really just a lacy design, but in the "fawn" color, they give the appearance of exceptionally hairy legs. That's not nearly as damaging a misstep as, say, opening a poorly thought-out specialty chain (Abercrombie & Fitch's (NYSE: ANF) Ruehl, Aeropostale's (NYSE: ARO) Jimmy'z, or even J. Crew's Madewell stores come to mind), but negative publicity when you're trying to gain traction doesn't help.

OrangeCrema believes that J. Crew is nonetheless a stylish pick: "Style is more in fashion than ANF, decent value at this area. Bought IRL closer to 30."

Penwest Pharmaceuticals
Endo Pharmaceuticals
(Nasdaq: ENDP) will acquire drug delivery specialist Penwest in a deal valued at $144 million. Penwest and Endo have been developing a treatment for moderate to severe pain in patients in need of continuous opioid treatment.

A sizable 30% of the CAPS members who've rated Penwest expressed concerns about its abilities prior to the merger agreement. But that same ennui doesn't exist for Endo, where 96% of the Fools rating it believe it will outperform the market.

Will bringing Penwest into the fold boost Endo's already deep pipeline? Add your opinion on the Endo Pharmaceuticals CAPS page.

Three for free
Are these companies still good values, 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.

eBay is a Motley Fool Stock Advisor choice. Motley Fool Options has recommended a bull call spread position on eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.