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 investment 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. My screen returned 134 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 Dec. 18 to March 16.

SciClone Pharmaceuticals, in fact, was previously picked as a stock ready to run just this past December. 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 45 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:

Source: Motley Fool CAPS Screener; price return from Feb. 19 to March 16.

You can run your own version of this screen over on CAPS; just remember that the data are 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.

Annaly Capital
There's a reason investors consider Annaly Capital a dream stock. The REIT is priced for a coming decimation in the commercial real estate market, but a lot of its risk is actually shifted onto the taxpayers. In the meantime, CAPS All-Star edwjm enjoys getting paid a rich dividend:

Annaly Capital Management, Inc. (NLY) owns and manages a portfolio of mortgage backed securities, including mortgage pass-through certificates, collateralized mortgage obligations and other securities representing interests in or obligations backed by pools of mortgage loans. This company does NOT buy junk.

At the current price of $18.64, the p/e is about 5 1/4 and the dividend is about 16 1/2%. Both these figures are very attractive for a stock much safer than these figures suggest.

Prudential Financial
The effects of President Obama's health-care reform bill continue to weigh on stocks. Prudential Financial became the latest to announce it would take a big $100 million charge in the quarter because of the new rules. Several companies have announced expectations of similar hits because of the new rules; AT&T (NYSE: T) said the changes would cost it $1 billion.

CAPS member WECpoker still says Prudential is a quality provider. Perhaps with much of the uncertainty now past, it will be able to stake its ground more firmly: "High quality Insurance Company. I will get in now in anticipation that Insurance Stocks will move out of 'Soft Market' pricing (as the economy improves) which is the reason most have extremely low PEs"

Santarus
A packet of prescriptions led pharmaceutical Santarus to post fourth-quarter profits earlier this month that more than doubled analyst estimates. Sales of its acid reflux treatment Zegerid rose 8%, but Santarus also received a $20 million milestone payment from Merck, as an over-the-counter version also gained approval. CAPS member markymark69 doesn't think it's likely he'll get heartburn investing here:

Great cash flow. Almost no debt. Double digit royalties coming in this year in addition to potential cash payment $35mil from Merck. I'm riding this one out to $7/share.

Three for free
Are these companies still good values, 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 whether you think these or any other stocks are starting to rev their engines.