There are plenty of strategies for picking winning stocks: low P/E stocks, companies that are discounted to their cash flows, and more. At the 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 at Motley Fool CAPS, I screened for stocks that investors had marked up before a run-up of 20% or more over the past three months. That underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned 27 stocks when I ran it, including these recent winners:


CAPS Rating  

March 17

CAPS Rating June 17

Trailing 3-Month Return





Elizabeth Arden (NASDAQ:RDEN)




Sequenom (NASDAQ:SQNM)




Source: Motley Fool CAPS Screener; price return from June 20 close to Sept. 15 close.

While that tells us which stocks we perhaps 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 for stocks that just bumped up to three stars or better, sport valuations lower than the market's average, and whose price hasn't moved up by more than 10% over the past month.

Here are three stocks out of the 45 the screen returned that still have attractive prices, but investors think they're ready to run today.


CAPS Rating June 13

CAPS Rating Sept. 15

Trailing 4-Week Return

P/E Ratio

Limited Brands (NYSE:LTD)





Annaly Capital Management (NYSE:NLY)





Hartford Financial (NYSE:HIG)





Source: Motley Fool CAPS Screener; price return from Aug. 20 close to Sept. 15 close.

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

Annaly Capital Management
As a mortgage real estate investment trust, you'd expect Annaly to be hit hard by the housing crisis, and sure enough, shares are off more than 30% from their highs. Yet the recent Fannie Mae (NYSE:FNM) bailout has created a situation that has some investors thinking there are exceptional profit opportunities available. With the government now backing the mortgages in the government-sponsored enterprises' portfolios, there's a wide spread between Annaly's funding costs and the yield on its mortgage-backed securities. That has CAPS All-Star member TMFActionJackson unexpectedly agreeing with a famous market commentator.

Jumping on the Cramer bandwagon. Say it aint so...

I believe that rates being lower due to Fannie/Freddie governmental control will allow this company the ability to make more money on the spread they can borrow to what they can lend. Print that money NLY!

Hartford Financial
The fallout from housing's demise continues to unveil just how many other industries became enmeshed in the web. Like American International Group, Hartford Financial provides both insurance and financial services and ended up holding toxic residential subprime mortgages. However, where AIG is finding its financial situation too tenuous to survive without help, Hartford has maintained a fairly strong capital position and may end up benefiting from its larger rival's troubles. CAPS member 7iles believes Hartford represents a good value.

Pretty sound investment and insurance company... no reason not to pick this company at these valuations.

Limited Brands
If housing and mortgages haven't been a picnic these days, retail hasn't left anything for the ants to pick over, either. Yet CAPS member TheHedonist figures that Limited Brands has a portfolio of top names and a history of international expansion that investors can count on.

From its beginning in 1963, the CEO of this company turned 1 little store into a holding company of several well-known and popular brands which include Victoria Secret with 1003 stores, Bath & Body Works with 1546 stores & La Senza with over 300 stores … which exist in Canada and 34 other countries. International growth of these brands with future acquisitions will make this a very powerful & profitable company for long-term shareholders.

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.

Annaly Capital Management and Limited Brands are Motley Fool Income Investor picks. Limited Brands is also an Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.