3 Stocks Set to Soar

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 84 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 Sep. 21 to Dec. 18

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 37 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; trailing performance from Nov. 23 to Dec. 18

You can run your own version of this screen over on CAPS; just remember that the data are 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
Closeout specialist Big Lots has felt the wrath of investors as it reported a sales slowdown earlier this year after having originally signal growth. What galled investors the most, however, was that a week after the discounter goosed the markets with the rosy outlook, its CEO sold off $10 million worth of stock. So, when Big Lots surprised every one just a month later with the new, lower forecasts, there were quite a few raised eyebrows over his prescient timing.

It wasn't just investors looking askance at the trade: the SEC and the FBI are conducting investigations, too. And now the CEO has decided to retire, but all unrelated to the inquiries, of course. The company has some answering to do, and though it will likely weigh on its performance for awhile, Big Lots does offer a compelling valuation, trading at just 10 times earnings, compared to dollar store rivals like Dollar General (DG -0.59%), Dollar Tree (DLTR -0.16%), and Family Dollar (FDO.DL), which go for between 16 and 18 times their earnings.

Naturally, they don't have SEC and criminal investigations hanging over their heads, but you can tell me in the comments box below whether you think Big Lots will still make a big splash in the coming quarters.

First American Financial
If the housing industry has really, finally bottomed after many false starts, then a title insurance provider now may find the opportunity to see growth. First American Financial is the leading player in the space and it's giving off indications things are looking up. Two months ago it boosted its quarterly dividend by 50% to $0.12 a share as profits in the quarter soared 375%, marking the third consecutive quarter it has posted such remarkable returns. And the housing industry hasn't even really gained traction yet.

While future quarterly results might not offer such triple-digit excess, it would seem the title insurer is ready to build a new future with housing.

Inergy
Midstream toll taker Inergy has also suffered at the hands of a weakened industry. Natural gas is in the midst of a glut of historic proportions, and though Inergy felt natural gas had better prospects than propane -- leading it to sell off its retail business to Suburban Propane (SPH 2.05%), though it retains the wholesale and logistics part -- its results have been hurt by lagging strength all around.

Inergy is now more of a holding company in natural gas since it spun out its midstream storage assets into Inergy Midstream (NYSE: NRGM) a year ago, but it now competes against some larger, better-financed rivals like Energy Transfer Partners (ETP). Yet natural gas is another industry waiting for a turnaround, but with a substantial stake in the Marcellus Shale, Inergy could become the big winner.