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 were marked up by investors before their share prices rose over the past three months. My screen returned just 151 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from Aug. 6 to Nov. 3. *CAPS rating is out of 5 stars.

Air Transport Services Group, in fact, was previously picked as a stock ready to run in August, 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 50 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:

Source: Motley Fool CAPS Screener; price return from Oct. 8 to Nov. 3.

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.

Avon Products
Ding dong! Estee Lauder (NYSE: EL) calling! Just doesn't have the same ring, does it? Yet after it was the only cosmetics company with decent earnings following both Avon Products and Revlon (NYSE: REV) missing estimates, the market boosted its shares while there was no masking the drubbing the market handed the other two.

Investors remain confident Avon will bounce back, however. CAPS member tommycarstensen says it has too many top-notch brands to completely succumb while exgringo says you can find them in the unlikeliest of places: "I saw Avon catalogs in the REMOTEST areas of Guatemala- browsed by indigenous women who only spoke Mayan dialect. They were buying too!"

Power-One
Utility-scale solar projects should help power up Power-One as developers rush to beat a New Year's Eve deadline to receive a cash grant worth 30 percent of the cost of renewable energy projects. After that date, it reverts to a 30% tax credit. California alone is pushing through nine projects year's end. Like Satcon Technology (Nasdaq: SATC), the country's largest inverter manufacturer, Power-One's inverters are targeted to the solar and wind power sectors.

Highly rated CAPS All-Star member TSIF thinks the stock shorted out for reasons unrelated to its business.

All in all, however, while I'm usually skeptical of a company that rises 5X in the course of a year, Power-One is forcasting a great quarter next quarter as well. They are bringing on more manufacturing capability and improving their product with a 3rd generation release. It's hard to believe that 38 Million shares traded hands Friday at a loss to the net share price after a company beats all analyst calls, guides upward, and has a forward P/E of sub-5 and a P/S of sub-1.

Winner Medical Group
Can the maker of medical dressings Winner Medical Group staunch the bleeding going on in Chinese small cap stocks that are hemorrhaging from financial misstatements? CAPS All-Star nonzerosum says it's also engaged in a fraud, or it's got a heckuva big opportunity for growth, and his read of the situation is for the latter.

Its latest quarter had awful cash flows. Just awful. The CEO is either embezzling all the money from the IPO (the hit to working capital is about the same as the IPO amount raised), or they are building up for one huge spike in sales over coming quarters. I'm going to take a swing for the latter. Why? Because this company has been in business for many years and exports its products (so you know that demand is real). Also, their auditor, BDO, is No. 5 so that offers some reassurance.

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.