3 Stocks Ready to Roar

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. At the small-cap stock-picking service Motley Fool Hidden Gems, even in this market, the analysts are able to stay ahead of the pack by finding undervalued stocks that Wall Street and investors have ignored.

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. (The market as a whole climbed sharply, then traded sideways, during that same period.) My screen returned 97 stocks when I ran it, no doubt reflecting the market's continued recovery, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from Aug. 28 to Nov 23. CAPS rating from one to five stars.

Safeway, in fact, was previously picked as a stock ready to run in July. 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, sport valuations lower than the market's average, and haven't appreciated by more than 10% in the past month.

Of the 52 stocks the screen returned, here are three that are still attractively priced, but that investors think are ready to run today:

Source: Motley Fool CAPS Screener; price return from Oct 30. to Nov 23. CAPS rating from one to five stars.

You can run your own version of this screen; just remember that the data is 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.

Deckers Outdoor
Sure, it's anecdotal, but my daughter called me from college the other day and urged me to start looking at Deckers Outdoor again. She said every girl in her dorm hallway had on a pair of Uggs, including herself. I think she'd disagree with CAPS member JohnMcCloy who suggests the uber-comfortable boot is no longer popular:

They will never make anywhere near the revenue they previously did with Uggs. The Uggs brand has ceased to be cool. And most who wanted a pair already purchased one. Couple that with the numerous affordable knockoffs such as Bearpaw that sell for 35.00 and you have a great short.

Gulf Resources
Until recently Chinese bromine producer Gulf Resources was an OTC penny stock, but a reverse split helped it get listed on the Nasdaq exchange. While that's usually enough to start waving red flags, Gulf Resources seems to have actually carved out an exciting niche for itself. Bromine is used in oil and gas exploration, fire retardants, and in the manufacture of chemicals, explaining why it also has its own chemicals business.

Highly rated CAPS All-Star mrindependent agrees that Gulf Resources has been enjoying phenomenal success:

Although its business description is sort of boring, Gulf Resources posts phenomenal returns on investments and sales growth as documented in BullishBabo's 10/27/09 pitch. The balance sheet is debt free and the company seems reasonably priced at less than 10 times earnings.

O'Reilly Automotive
Aftermarket auto parts have become a more competitive industry as the recession nudged people to start servicing cars themselves. CAPS member pmunger3 thinks O'Reilly Automotive's positioning gives it an edge over others, like industry leader AutoZone (NYSE:AZO):

This company's strong market strategy in achieving a 50/50 retail/wholesale will dominate the market. With the addition of a very large distribution center in the seatle area that will be opening in November and the additional parts inventory currently being added to all of the recently converted csk stores o'reilly automotive will not only outperform the s&p but is on the right track to outperform and dominate all the other aftermarket autopart retailers. They have wisely added additional payroll to their stores to match the added inventory and this is already starting to pay off in even better customer service..

Three for free
Are these companies still a good value and ready to make their move? I'm heading over to CAPS to mark them to outperform the broader averages. If you agree join me there, or let us know in the comments section below what you think?

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.