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 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. My screen returned 97 stocks, no doubt reflecting the market's recent move up, and included these recent winners:

Source: Motley Fool CAPS Screener; trailing performance from Sept. 4 to Dec. 2.

While this screen might tell us which stocks we should have looked at three months ago, we'd rather find the stocks 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 60 stocks the screen returned, here are three that are still attractively priced; some CAPS investors think they're ready to run today:

Source: Motley Fool CAPS Screener; price return from Nov. 6 to Dec. 2.

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

Chimera Investment
After the collapse of some savings and loans in the 1980s, investors realized substantial profits by scooping up the distressed assets being unloaded. Annaly Capital Management (NYSE:NLY) is doing the same thing with Chimera Investment, which it spun off to invest in the many distressed real-estate assets and mortgages that proliferate today. CAPS member bigmike7 finds it hard not to like what this real estate investment trust is offering.

rising dividend (8% to 12% in six months) dealing in Government backed mortgages-how can ya lose-eh??

Hi-Tech Pharmacal
The generic drug portfolio of Hi-Tech Pharmacal continues to bring profits. In the latest quarter, net income jumped nearly 600% as the company tripled revenue, based on generics launched within just the past year. CAPS member OrangieBoy writes that analysts will begin to take more of an interest.

Hi Tech sales and profits continue to grow and generic drugs will do well in the current health care environment. This company keeps its nose to the grindstone and does not self promote itself, only now are more [analysts] starting to follow it.

SciClone Pharmaceuticals
SciClone Pharmaceuticals' top product, Zadaxin, is sold in 30 markets around the world for treating hepatitis B and C viruses and certain cancers. However, it is not approved in the U.S. for hepatitis C and it failed to meet the main goal in a hepatitis C study last year. Another drug the company was developing for pancreatic cancer also failed to pass muster recently. Now the company is looking to piggyback Zadaxin on the swine flu virus.

While 86% of the CAPS members rating SciClone believe it will outperform the market averages, TraderHater is willing to "short" it on CAPS: "Apparently, the key to making good calls is just short the [heck] out of all the penny stocks." We'll see if SciClone can regain its footing.

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 what you think in the comments section below.

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. Go to the completely free CAPS service and let us hear what you have to say about these or any other stocks that might be starting to rev their engines.