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:
|
Stock |
CAPS Rating 6/28/12 |
CAPS Rating 9/28/12 |
Trailing 13-Week Performance |
|---|---|---|---|
|
Flagstar Bancorp (FBC +0.00%) |
** |
*** |
72% |
|
Chenier Energy (LNG 0.35%) |
** |
*** |
19.6% |
|
Cathay General Bancorp (CATY +0.51%) |
** |
*** |
11% |
Source: Motley Fool CAPS Screener; trailing performance from Sept. 28 to Dec. 27.
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 40 stocks the screen returned, here are three that are still attractively priced, but that investors think are ready to run today:
|
Stock |
CAPS Rating 9/28/12 |
CAPS Rating 12/27/12 |
Trailing 4-Week Performance |
PE Ratio |
|---|---|---|---|---|
|
FirstMerit (FMER +0.00%) |
** |
*** |
1.1% |
12.3 |
|
Greenbrier Companies (GBX 0.47%) |
** |
*** |
(17.7%) |
8.2 |
|
Perfect World (PWRD +0.00%) |
** |
*** |
(4.4%) |
7.1 |
Source: Motley Fool CAPS Screener; trailing performance from Nov. 30 to Dec. 27.
You can run your own version of this screen over on CAPS; just remember 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.
FirstMerit
Ever since announcing it was buying fellow Midwestern bank Citizens Republic Bancorp (NASDAQ: CRBC) for $952 million, shares of FirstMerit have been in freefall. Yet the combined banks will have $15 billion in loans, $19 billion in deposits, and total assets in excess of $24 billion while witnessing significant accretion to earnings in 2014 .
Perhaps the market didn't like the fact it would be on the hook for paying back the $345 million bailout it got through the Troubled Asset Relief Program, or that Citizens lost some $1 billion since 2007 . Whatever the reason, FirstMerit beat to the punch rival Huntington Bancshares (HBAN 0.46%), which was rumored to be in the market for a bank in the region, and with the industry going through a period of consolidation Fifth Third Bancorp (FITB +1.26%) was also said to be on the prowl .
While it's not always a benefit to come in first when pursuing damaged goods, FirstMerit seems as though it should come out ahead in the end.
Greenbrier Companies
Railcar maker Greenbrier Companies is another example of a buyout attempt gone awry after it rejected a sweetened offer from American Railcar Industries (NASDAQ: ARII) to get bought out for $22 a share.
Carl Icahn, who has a controlling interest in American Railcar, had upped the bid after allegedly being told by Greenbrier's investment banker an offer in the range of $20 to $22 a share would be better. When the railcar maker rejected the offer, Icahn sold most of the stake he had built up in Greenbrier, effectively ending his attempt to take over the rival.
Maybe Greenbrier thought it could push the envelope further because it said it still wants to talk, but Icahn doesn't appear to have any interest at the moment . With the stock losing nearly a quarter of its value since the deal fell apart, Greenbrier may generate some green yet for intrepid investors.
Perfect World
The free-to-play/pay-to-play-more online gaming business model is not a tried-and-true winner, though gamers from Perfect World to Electronic Arts (EA 0.05%) have broadly adopted the method of having a recurring revenue stream. Even mobile-gaming specialist Glu Mobile (GLUU +0.00%) switched over to the in-game promotion model; it's popular with companies, but not with players, who aren't sold on being nickel-and-dimed for the full-on game experience.
But revenues improved in the latest quarter, rising to 698.5 million renminbi from 676 million in the second quarter, though it was still down from the year-ago period . I'll admit to not be a fan of the freemium gaming model, but Perfect World may now be at the perfect level to get back in.
