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. 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 74 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
|
Stock |
CAPS Rating 6/11/12 |
CAPS Rating 9/10/12 |
Trailing 13-Week Performance |
|---|---|---|---|
|
Sirius XM Radio (SIRI +0.00%) |
** |
*** |
10.9% |
|
Flagstar Bancorp (FBC +0.00%) |
** |
*** |
15% |
|
Aegerion Pharmaceuticals (NASDAQ: AEGR) |
** |
*** |
33% |
Source: Motley Fool CAPS Screener; trailing performance from Sept. 14 to Dec. 10
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 36 stocks the screen returned, here are three that are still attractively priced, but that investors think are ready to run today:
|
Stock |
CAPS Rating 8/24/12 |
CAPS Rating 11/23/12 |
Trailing 4-Week Performance |
P/E Ratio |
|---|---|---|---|---|
|
Alliant Techsystems (NYSE: ATK) |
** |
*** |
6.7% |
8.3 |
|
Arlington Asset Investment (AI +0.00%) |
** |
*** |
8.6% |
7.9 |
|
Old National Bancorp (ONB +0.24%) |
** |
**** |
5.1% |
12.4 |
Source: Motley Fool CAPS Screener; trailing performance from Nov 16 to Dec 10
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.
Alliant Techsystems
You might be tempted to think the surge in ammunition maker Alliant Technsystems stock was related to the jump in shares experienced by Smith & Wesson Holding (SWHC +2.89%) and Sturm, Ruger (RGR +2.04%), both of which are soaring as gun sales boom, but as a military supplier of munitions, it's largely absent from the jump in personal defense weaponry.
Rather, Alliant's on target to enjoy future growth because of rising small caliber ammunition sales and contract wins for fuzes and munitions (fuzes, as opposed to "fuses," are an ignition system and spelled differently to delineate the difference between them and burning fuses). Though quarterly results came in below last year's effort, that was due more to one-time items than slack business, and it ended up crushing estimates.
Wall Street is certainly bullish on the insurers prospects as 9 of the 11 analysts weighing in on Alliant and tracked by CAPS think it will beat the market indexes, but you can tell me in the comments box below whether you think it's just plain cool they make "chain guns."
Arlington Asset Investment
Not nearly as exciting as weaponry that sounds like it's right out of the video game Doom, Arlington Asset Investment invests exclusively in mortgage-backed securities and has been benefiting from the housing industry's apparent rise from the grave. Its MBS portfolio rose to more than $1 billion last quarter as it recorded profits of $3.1 million, or $0.31 a share compared to a net loss of $11.6 million, or $1.50 a share, last year .
While the stock suffered an October swoon, it got a big boost the following month when it reported the SEC concluded its investigation into disclosures it had made in 2007 for an MBS offering. The subsequent industry collapse had regulators looking into a lot of such deals, but Arlington said no enforcement action would be forthcoming .
A major roadblock has been removed, and Arlington looks like its ready to continue its journey out of the cemetery.
Old National Bancorp
Can there be a bank name anymore boring than Old National Bancorp? Yet following its own October sell-off, Old Boring was anything but as it soon began a turnaround on the back of an acquisition that should continue to bolster its capital ratios. Net interest margin rose 13 basis points over the previous year, Tier 1 capital ratios were also on the rise, and delinquency rates remain near record lows.
While that is hopeful, investors need to keep their eye open for rising problem loans and a sequential deterioration in metrics from the second quarter. But the addition of Indiana Community Bancorp with its $494 million loan portfolio and $785 million in deposits should shore up any deficiencies.
As my Foolish colleague Sean Williams points out, Old National's interest margin and delinquency rates are better than those of many of its peers. And after all, after the rollicking financial turmoil we've just been through, boring is good when it comes to banking.
