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 68 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:


CAPS Rating 11/22/10

CAPS Rating 2/22/11

Trailing 13-Week Performance

Seattle Genetics




Hibbett Sports




Funtalk China




Source: Motley Fool CAPS Screener; trailing performance from Feb. 18 to May 20.

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


CAPS Rating 2/21/11

CAPS Rating 5/20/11

Trailing 4-Week Performance

PE Ratio

Big Lots (NYSE: BIG)





Kronos Worldwide (NYSE: KRO)





Smurfit-Stone Container (Nasdaq: SSCC)





Source: Motley Fool CAPS Screener; price return from Apr. 21 to May 20.

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.

Big Lots
Maybe it has been the success of Dollar General, which was taken private and then spun back out two years ago and has since risen about 50% in value. Since then, private equity firms are in pursuit of other deep discount venues like 99 Cents Only and Family Dollar (NYSE: FDO). Feeding the frenzy, closeout leader Big Lots also looked for a buyer, but when it came up empty and said it was no longer looking for bidders, the stock dropped like a rock. If someone with deep pockets isn't interested in paying up, why should shallower pockets?

The drop brings the share prices back to a more reasonable valuation: It trades at an enterprise value to EBITDA of just 5.4, but analysts forecast better than 12% earnings growth over the next five years. CAPS member timclaason said last week that the latest earnings report was rough, but Big Lots looks attractive on a number of metrics:

They missed earnings today, so they'll be floundering for awhile. However, with a P/E in the 12s, decent margin, no debt, and current place in 52 week range, I'm in.

Make a big splash on the Big Lots CAPS page on whether you should close out your holdings here or buy more.

Kronos Worldwide
Titanium dioxide, the stuff that creates white pigment, eats up about 20% of the raw materials basket for paint maker Sherwin-Williams (NYSE: SHW). Thus with a housing market still slumping, news that leading titanium dioxide producer Kronos Worldwide was raising the price on it another $0.15 per pound on top of the price increases it's already announced is likely to pressure margins at Sherwin-Williams. DuPont (NYSE: DD), the world's biggest TiO2 producer, also announced it was hiking prices on the stuff, too.

CAPS member mdriver78 pins a better outlook on Kronos: "Titanium oxide usage should increase along with an improving world economy."

Tell us on the Kronos Worldwide CAPS page whether the specialty chemicals maker will be able to paint it black in the future.

Smurfit-Stone Container
Just months after emerging from bankruptcy protection, Smurfit-Stone Container received and accepted a $3.5 billion buyout offer from food and consumer products packaging maker Rock-Tenn (NYSE: RKT). With a CEO who was looking to retire anyway, this merger of equals gives him a graceful way to exit and gives the packaging company a new management team that is a proven industry leader.

While the CAPS community was fairly bullish on a post-bankrupt Smurfit, they're even more confident about Rock-Tenn, with 94% of those rating it believing it will go on to outperform the broad market averages.

Let us know on the Rock-Tenn CAPS page whether this combination is all boxed up and ready for delivery.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.