3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners: low price-to-earnings ratios, discounted cash flows, and more. At the small-cap stock-picking service Motley Fool Hidden Gems, our analysts are beating the market by 20 points by finding undervalued stocks that the market and investors have ignored.

Those approaches are all fine, but what if we could find a way to whittle down our list of prospects beforehand and find those whose engines are just getting warmed up?

Using the investor-intelligence database of Motley Fool CAPS, I screened for stocks that investors marked up before their stocks began a run-up of 20% or more over the past three months. Thus, I'd be taking advantage of the results of the first year of data collection, which suggested that CAPS' highest-rated stocks performed best while its lowest-rated companies fared worst.

My screen returned 22 stocks when I ran it and included these recent winners:

Source: Motley Fool CAPS Screener. Price return from April 25 close to July 21 close.

That tells us which stocks we perhaps should have looked at three months ago, but we want the stocks that we ought to be looking at today. So I went back to the screener and looked for stocks that just bumped up to three stars or better, sport valuations lower than the market's average, and trade at a price that hasn't moved up over the past month by more than 10%. That gave me a large field of stocks still attractively priced but which investors think are ready to run today! Here are three of them:

Source: Motley Fool CAPS Screener. Price return from April 25 close to July 21 close.

Let's take a look at why investors might think these companies will go on to beat the market.

Bed Bath & Beyond
Even as rival Pier 1 Imports (NYSE:PIR) thought it could buy a competitor until reality sank in, Bed Bath & Beyond has been steadily doing its thing. Expansion has been steady while it has boosted sales, kept profits intact, and even managed a smidge of an increase in same-store sales in the past quarter.

Of course, not everyone is buying into the scenario that the boudoir outfitter is worthy of furnishing your portfolio. Even some smart Foolish analysts say to beware of the Motley Fool Stock Advisor recommendation, and CAPS member BustaCAPS says times are simply too tight to buy discretionary items: "Makes money when people have money to blow. Let's see ... do people have money to blow right now ... uh …"

One Liberty Properties
Where residential housing has been in the doldrums for a while, commercial properties are only just getting into the act of facing hard times. One Liberty Properties is a real estate investment trust that invests in improved commercial real estate with long-term leases. Unfortunately, it hasn't been immune from the downturn. One of its majority shareholders, ROCA Real Estate, has been agitating for the REIT to sell itself, go private, or liquidate its assets because it claims that expenses are all out of proportion to running day-to-day operations.

The wrangling has turned acrimonious, but CAPS member dew250 believed back in February that the maneuvering was where investors could realize value.

Getting Swallowed by ROCA. It's a great portfolio, they're all triple net properties, and operating expenses are high for no apparent reason deflating the value of the stock. Still, it's got an amazing dividend. ... ROCA is not hiding their pickup of OLP stock. Read their recent letter to OLP.

Southside Bancshares
It always gets me interested when a stock starts to move for no reason. Texas-based Southside Bancshares is one of those companies. Its shares have climbed by 15% in two weeks -- after falling by as much as 23% -- with no news other than a report about a director buying a handful of shares on the market and an announcement of a new president for a subsidiary. Investors as well have been mum, though two All-Star CAPS members recently gave it the thumbs-up. Perhaps with the Federal Reserve bailing out the financial markets, it has justified their moving in. Maybe it also explains why the company's CAPS rating has moved from a lowly two stars to the top five-star ranking.

Three for free
That's what investors are saying about these three stocks, but there are thousands of stocks in the CAPS universe. Head over to the completely free CAPS service, and let us hear what you have to say about these or any other stocks that you think are starting to rev their engines.