3 Stocks Ready to Roar

There are plenty of strategies for picking winning stocks: low P/E stocks, companies that are discounted to their cash flows, and more. At our small-cap stock-picking service, Motley Fool Hidden Gems, the analysts are beating the market by 20 percentage points 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 those 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 a run-up of 20% or more over the past three months. That underscores the research suggesting that CAPS' highest-rated stocks have performed best, while its lowest-rated companies have fared worst.

My screen returned some 27 stocks, including these recent winners:

Source: Motley Fool CAPS screener; price return from May 23 close to Aug. 22 close.

While that might tell us which stocks we should have looked at three months ago, what we want are the stocks that we ought to be looking at today. So I went back to the screener and looked for stocks that had just been bumped up to three stars or better, that sport valuations lower than the market's average, and whose price hasn't moved up over the past month by more than 10%.

Here are three stocks out of the 31 the screen returned that are still attractively priced, but that investors think are ready to run today!

Source: Motley Fool CAPS Screener; price return from July 25 close to Aug. 22 close.

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

Ameren
This public utility serving Missouri and Illinois has been approved for a round of rate hikes to offset its own soaring energy costs, and it has plans to institute more, which has some investors thinking this might be one of the next stocks to buy. Ameren's not alone in having to hike rates. Earlier this year, Public Service Enterprise Group (NYSE:PEG) sought increases that would have customers paying 79% more than they were just five years ago. Back in June, CAPS member thinkahead recommended waiting for the floods in the Midwest to be cleaned up before plugging in to Ameren:

This utility stock has plummeted sharply in early '08 due to selling off portions of the company and other reasons. At today's price of $41.96, it has lost 25% since last Dec. and is a bargain. In the past it was a very stable stock and should turn around soon once the '08 Midwest flooding has subsided (don't buy it until they have cleaned up the mess first).

GSI Group
Industrial laser maker GSI Group has had a sleepy existence on CAPS. Investors generally feel positive about the company (82% mark it to outperform the S&P 500), but they haven't ventured to weigh in on the stock by writing an outperform pitch. That could be because industrial lasers and precision motion products aren't exactly a sexy industry. Be the first!

Inergy Holdings
Propane and natural gas leader Inergy has been on a tear lately, buying up companies like U.S. Salt to increase its storage capacity. Although Standard & Poor's put it on a negative credit watch as a result, management contends this was merely to give the ratings agency time to digest the deal, as the company feels the acquisition is a positive. CAPS member adam2531 felt back in March that the buying spree was helping Inergy shore up its operations:

Inergy Corp is growing its customer base by buying up smaller gas distributors throughout the U.S. Its stock price has taken a dip as of late but has otherwise has been stable. Its pays a 9% dividend to keep you hanging on for years to come.

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. Head on 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!