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 164 stocks, no doubt reflecting the market's continued recovery, and included these recent winners:

Source: Motley Fool CAPS screener.
Trailing performance: Feb. 19 to May 17.
CAPS rating = out of five.

Lithia Motors, in fact, was picked as a stock ready to run just two months ago. But 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 48 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: April 23 to May 17.
CAPS rating = out of five.

You can run your own version of this screen over on CAPS; just remember that the data's dynamically updated in real time, so your results may vary. That said, let's examine why investors think these companies will go on to beat the market.

China Automotive Systems
Demand for automobiles is returning globally; nowhere more so than in China, where sales are projected to grow 5.5% this year, with some 67.6 million units moved. China Automotive Systems is a key supplier to many automakers in the country, and while the boom will undoubtedly also help suppliers like Wonder Auto Technology (Nasdaq: WATG), analysts think CAS' clean balance sheet and ability to generate strong free cash flow make it worth the premium to rivals at which it trades.

CAPS member Rodgereiss is looking for institutional investors to take notice of China Automotive Systems. "Coming off of 3 quarters of accelerating earnings growth and once the big boys start to get on board the stock price will follow the earnings track record."

Enzon Pharmaceuticals
Enzon Pharmaceuticals might have missed analyst expectations with its first-quarter earnings, but the sale of its specialty pharmaceuticals business will allow it to focus on its drug development pipeline. It stands to reap royalties through 2014 from four drugs that were sold off, which will add to the substantial royalties it already receives from Merck (NYSE: MRK). With almost $500 million in the bank, Enzon is attracting investors like CAPS member NKVD1938, who likes its slimmer look:

Serious market outperform over the last 8 trading days, which counts for a lot in my book. Also retired a nice chunk of its previously gargantuan debt load this past quarter. I kind of like this one at least as a market outperform.

StoneMor Partners
As the second-largest cemetery operator in the U.S., behind Service Corp (NYSE: SCI), StoneMor Partners finds itself in the odd position of hoping for death rates to rise to boost earnings. Earlier this year, when rates fell, it turned in a fourth-quarter loss as revenues from cemetery merchandise and services also declined.

It's as quiet as the grave on the StoneMor Partners CAPS page; fewer than 100 members have rated the cemetery operator so far. Of those, 85% see it outperforming the broad market averages. Dig your own plot there and let us know whether StoneMor has the chance to grow.

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. 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.