3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners: low P/E stocks, companies selling at a discount to their cash flows, and more. At the small-cap stock-picking service Motley Fool Hidden Gems, the analysts are beating the market by 23 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 performed best, while its lowest-rated companies fared worst.

My screen returned 21 stocks and included these recent winners:

Source: Motley Fool CAPS Screener; price return from May 16 close to Aug.11 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 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 20 the screen returned that are still attractively priced, but which investors think are ready to run today!

Source: Motley Fool CAPS Screener; price return from July 18 close to Aug. 11 close.

Let's look at some investor bullish sentiment.

Bank of New York Mellon
Despite having to take a $152 million charge related to "certain investment securities," Bank of New York Mellon remains financially secure enough to earn a silver medal among financial institutions. Its Tier 1 capital ratio, an indicator of financial strength, has improved to 9.1 from 8.8 in the first quarter, and puts it ahead of such venerable names as Citigroup (NYSE:C) at 8.7 and HSBC (NYSE:HBC) at 8.8.

Although the company has proven itself to be fairly sound, even All-Star investors like CAPS member JDSancho figure that the market will continue to act irrationally in regard to banks:

I'll maintain my underperform call for now, just because it's a bank, and the rest of the sector should weight [sic] on its share price. As soon as the sector is ready for a turn around, [Bank of NY Mellon] will outperform the rest of the sector, and maybe the market in general.

ProLogis
ProLogis, a real estate investment trust (REIT) that is the world's largest owner, manager, and developer of industrial distribution facilities, managed to exceed analyst expectations even though funds from operations, a key measure of REIT profitability, fell year over year. With an international portfolio of properties, CAPS member slimpickins2 feels it'll be able to opportunistically benefit from emerging world economies:

I like this REIT long term, because they manage industrial properties, in developing countries that can/will grow quickly. They also seem to do this well, with a long history of good growth rates. Down off the high, now is as good a time as ever to get in.

What do you think of those apples?
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. Why not head 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?