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 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 62 stocks when I ran it, no doubt reflecting the market's continued recovery during that time, and included these winners:
|
Company |
CAPS Rating
|
CAPS Rating March 16, 2010 |
Trailing 13-week Performance |
|---|---|---|---|
|
Dick's Sporting Goods |
** |
*** |
10.6% |
|
PowerSecure International |
** |
**** |
22.5% |
|
Schweitzer-Mauduit International (NYSE: SWM) |
** |
*** |
22.1% |
Source: Motley Fool CAPS screener; trailing performance from March 19 to June 14.
Schweitzer-Mauduit International, in fact, had been picked as a stock ready to run in March. 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 had just been 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 59 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
|
Company |
CAPS Rating March 16 |
CAPS Rating June 15 |
Trailing 4-Week Performance |
P/E Ratio |
|---|---|---|---|---|
|
Advance Auto Parts (NYSE: AAP) |
** |
*** |
2.7% |
16.7 |
|
Crosstex Energy (Nasdaq: XTXI) |
** |
*** |
4.4% |
16.6 |
|
eHealth (Nasdaq: EHTH) |
** |
***** |
(5.5%) |
19.0 |
Source: Motley Fool CAPS Screener; price return from May 21 to June 14.
You can run your own version of this screen over on CAPS; just remember that the data is 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.
Advance Auto Parts
Warren Buffett wannabe Sardar Biglari, who is trying to convert Biglari Holdings (NYSE: BH) into a mini-Berkshire Hathaway (NYSE: BRK-A) by buying up disparate businesses, saw the potential Advance Auto Parts held and tried to bring it into his fold. Yet unlike Buffett -- who typically gets what he wants -- Biglari couldn't convince enough shareholders that being part of an amalgam of restaurants and insurance investments was in their best interests, so he had to withdraw his tender offer. Perhaps they just didn't like Biglari taking up to a quarter of the company's book value growth for himself. Very un-Buffettlike.
CAPS members like highly rated All-Star chitownjester expect Advance Auto Parts to do well as people fix their old cars rather than get new ones, and its latest earnings report underscored that optimism.
Auto parts stores do well in good times and bad. All they need is good management and good use of cash.
Crosstex Energy
Volume increases on Crosstex Energy's natural gas pipeline "toll road" have increased lately, particularly in its Haynesville shale play. While natural gas supplies remain elevated and prices depressed compared with historic norms, the Haynesville shale continues to attract attention and competition, with Energy Transfer Partners (NYSE: ETP) beginning construction of a 175-mile pipeline.
CAPS member Skyshark29 says pricing is key to Crosstex Energy's future and that prices will increase soon enough.
A solid performing company that has been beaten down along with Natural gas as it hit all time lows recently. As Natural Gas recovers along with oil in the recent dive, [Crosstex's] beta of 2.05 will help make a quick recovery back to the $8.50-$9 range with plenty of room for growth after wards. [Crosstex] also profits from Pipelines and transmission of NGL's which helps with revenues even when NG is dirt cheap. I believe this gives them an edge over just proven reserves and production.
eHealth
Serving as a middleman for health insurance companies, eHealth lets consumers compare and purchase policies online. While that's a pretty mundane business, eHealth earns commissions for helping consumers steer through what would otherwise be a labyrinthine paper process. With insurance rates set by individual states, there's no margin for discounting prices here, so eHealth also licenses its technology out to carriers who can offer policies on their own websites.
The CAPS community is only just warming up to the company, as fewer than 100 members have rated it. Yet of those who have, 88% see it outperforming the broad market averages. Head to the eHealth CAPS page to offer your opinion.
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 what you think in the comments section below.
