3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners: low P/E stocks, companies selling at a discount to their future cash flows, and more. At the small-cap stock picking service Motley Fool Hidden Gems, the analysts are able to stay ahead of the market -- even in these tough times -- by finding undervalued stocks that the market and investors have ignored.

Yet what if we could find a way to whittle down our list of prospects beforehand, finding stocks whose engines are just getting warmed up?

Using the investor intelligence database of Motley Fool CAPS, I screened for stocks that were marked up by investors before their stocks began to move up over the past three months, amid a market that has headed south in a dramatic fashion. My screen returned 49 stocks, including these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from Dec. 19 to Mar. 20.

Alpha Natural Resources, in fact, was previously picked here back in December. Even after Cliffs Natural Resources (NYSE:CLF) backed out of its bid to buy it, the company has lived up to its promise. But 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, sporting valuations lower than the market's average, and whose prices haven't risen more than 10% over the past month.

Here are three stocks out of the 41 the screen returned that are still attractively priced, but which investors think are ready to run today!

Source: Motley Fool CAPS Screener; price return from Feb. 13 to March 13.

You can run your own version of this screen, if you like. Just keep in mind that the results you get may be different, since the data is dynamically updated in real time. In the meantime, let's see why investors might believe that the companies above will ultimately beat the market.

Allegheny Energy
Utilities like Allegheny Energy continue to attract investors as steady-eddy investments, and CAPS member Buster3333 finds this one's combination of rate increases and coal contracts attractive: "Locked in market rate increases will increase earnings, $1B transmission line ROR is 13% (subtract cost to borrow), and coal contracts are below market."

Callaway Golf
As the financial crisis set in, consumer discretionary spending dried up, hammering both retail stores and ancillary businesses such as golf club maker Callaway Golf. Yet CAPS member TMFPhila thinks that misery has already been priced into this otherwise profitable business:

Trading at roughly tangible book value with no long term debt and a long history of profitability. And a 4% dividend to boot. Discretionary spending is down and could be for some time, but the market has already priced that in.

Monotype Imaging
As a child, I remember visiting my father's business, where he operated a Linotype machine churning out slugs of metal type for the printing business. Since then, much of the printing world has gone digital, including Linotype's parent Monotype Imaging. The most recent quarter saw the text-imaging-solutions provider suffer only a slight drop in revenue as profits nudged higher, enough to beat analyst expectations. With debt balances falling, cash balances rising, and opportunities in mobile texting opening up, Monotype may continue to surprise investors.

Three for free
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Why not head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think are starting to rev their engines?