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 138 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 Oct. 1 to Dec. 28. CAPS rating is out of five stars.

Puda Coal, in fact, was picked as a stock ready to run back in September, and represented a period when the market rose by 10%. 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 39 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 Nov. 19 to Dec. 17. CAPS rating is out of five stars.

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.

Aon
Midsummer was a time when investors were expecting insurance and risk management specialists to outperform the broad market averages. First they chose National Financial Partners to beat the Street (it's up almost 29% since then), then they chose Aon the following week, as better earnings and an appetite for acquisitions made it look hungry for further growth.

Aon is now 20% higher and CAPS members are back for a second bite. Insurers have been on a tear as even American International Group jumped more than 40% over the past month, and 86% of the CAPS members rating Aon believe it will outperform the broad market averages once again.

Adding the insurer to your watchlist allows you to stay on top of all the Foolish news and analysis.

KLA-Tencor
The semiconductor test equipment segment looks ripe for consolidation as Verigy sorts out competing bids from Advantest and LTX-Credence (Nasdaq: LTXC). Such offers make others in the space look attractive, and KLA-Tencor has been bolstered by the bidding war, even though it has moved sharply higher since the summer, when analysts were expecting equipment spending to fall.

A number of CAPS members, including All-Star mrindependent, have taken note of KLA's steady stream of dividends, currently yielding 2.5%, as a reason to buy in. With 85% of the CAPS members who rated it marking it to outperform the market, there are more than a few who would seem to agree. Let us know whether you do too on the KLA-Tencor CAPS page.

Mitsubishi UFJ Financial Group
Deflation has gripped Japan, with prices falling in the country for a record 21 months straight. While falling prices tend to erode corporate earnings, weaken consumers' drive to spend, and make debts harder to pay off, it could really impact banks with assets on their balance sheets with plummeting values.

While regional U.S. banks like Regions Financial (NYSE: RF) and Synovus Financial (NYSE: SNV) warned investors about the dangers to their business from deflation, Japanese banks like Mitsubishi UFG have had to contend with it for the past decade.

CAPS All-Star fringefan is expecting Japan and thus Mitsubishi to rebound soon, and 89% of the CAPS members rating the money center apparently agree. You can add the bank to the Fool's free portfolio tracker, then deposit your thoughts on the Mitsubishi UFJ Financial Group CAPS page or in the comments section below.

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.