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:
|
Stock |
CAPS Rating |
CAPS Rating |
Trailing 13-Week Performance |
|---|---|---|---|
| Akorn | ** | *** | 77.3% |
| International Rectifier (NYSE: IRF) | ** | *** | 51.9% |
| Kenexa | ** | *** | 67.4% |
Source: Motley Fool CAPS Screener; trailing performance from Aug. 6 to Nov. 3.
International Rectifier, in fact, was picked as a stock ready to run in August, and represented a period when the market fell by 6%. 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 48 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
|
Stock |
CAPS Rating |
CAPS Rating |
Trailing 4-Week Performance |
P/E Ratio |
|---|---|---|---|---|
| China Agritech (Nasdaq: CAGC) | ** | *** | 2.6% | 21.0 |
| China Automotive Systems (Nasdaq: CAAS) | ** | **** | (3.7%) | 15.1 |
| Pacer International (Nasdaq: PACR) | ** | *** | (4.1%) | 15.3 |
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.
China Agritech
With questions swirling around China Agritech's relationship with its auditor, and earnings devastated by horrendous flooding, investors may want to approach the liquid-fertilizer maker with caution. Receivables soared 34% year over year, and they're up 58% since just the start of the year. That may help explain why China Agritech has limited the credit it extends to its customers.
There's still some hope, though. With new seeding under way, farmers will want to recover from the floods, which ought to help overcome the drop in demand China Agritech saw for its fertilizers. And if BHP Billiton (NYSE: BHP) successfully acquires PotashCorp (NYSE: POT), the deal could boost the valuations of all fertilizer companies.
More than 91% of CAPS members rating China Agritech believe it can bounce back. With shares now trading 60% below the stock's 52-week high, this could be an attractive buy-in price. Add the fertilizer maker to your watchlist to stay on top of all our Foolish news and analysis on the company.
China Automotive Systems
The growth of the Chinese auto market continues apace, and parts supplier China Automotive Systems is positioned to capture that momentum. Its customers rank among the country's top-selling carmakers, including BYD, Dongfeng, and Chery. (General Motors remains China's biggest automaker.)
The third quarter is typically CAS's slowest quarter, but record sales rose almost 18% nonetheless. SORL Auto Parts is set to report its earnings next week; we'll see whether this turns into an industrywide drive.
Tell us on the China Automotive Systems CAPS page whether you think this stock is ready to step on the gas for additional gains.
Pacer International
The reverse split YRC Worldwide (Nasdaq: YRCW) engineered gave that trucker a new, temporary lease on life. But its shares' continued decline shows just how rough the trucking industry's road has become. Logistics company Pacer International had the added difficulty of getting swamped by Hurricane Alex this past June. The storm swiped $4 million in operating income by causing severe flooding in Mexico, which damaged tracks, impaired bridges, and resulted in the closure of the primary line for Pacer's rail carrier for more than a month.
As edfirst noted this past summer, though, Pacer has been on pace to reduce its debt load, which is down 25% since the start of the year. Has this become a bargain basement stock, or is it still a logistical nightmare? Let us known on the Pacer International 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.
