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 future cash flows, and more. At the small cap stock picking service Motley Fool Hidden Gems, the analysts are beating the market by 20% 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 some 17 stocks when I ran it and included these recent winners:

Source: Motley Fool CAPS Screener; price return from July 4 close to Oct. 3 close.

While that tells us which stocks we perhaps should have looked at three months ago, we'd rather find the stocks that we ought to be looking at today. So I went back to the screener and looked for stocks that just bumped up to three stars or better, 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 64 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 Sept. 5 close to Oct. 3 close.

Let's take a look at why investors might think some of these companies will go on to beat the market.

Advanta
A number of investors on CAPS think credit card issuer Advanta's dividend payments might suggest it'll outperform the market. However, some analysts suspect that falling earnings may explain the dramatic increase in the interest rates Advanta, Bank of America (NYSE: BAC), and others are charging its cardholders. CAPS member mbernhagen feels that if the small- business market Advanta targets can't get access to credit markets, it may increase its use of credit cards:

There financials are strong, and I like their earnings during this tough market. Small business won't be squeezed out by the financial crisis, and, if anything, their credit card use may increase due to increased difficulty in qualifying for loans. A solid paying dividend is another interest peaker.

Boyd Gaming
Now is the time for gamblers looking to Vegas to score some discount bargains, perhaps not only at the craps table but in the market too. The tough market has casino operators offering gamblers some attractive incentives to come play. Boyd Gaming has even put on hold a partially completed project to conserve cash till better days. CAPS All-Star lowellfield acknowledges the large negative sentiment surrounding Boyd, but thinks there are potential catalysts for a spike in price:

Passed on as a short due to high levels of confusion around Echelon shutdown, low valuation, seemingly adequate liquidity and strong negative sentiment. Seems like a lot of possible news could cause a spike, including acquisition by financial or strategic buyer.

Cooper Tire & Rubber
CAPS member Fiberx thinks Cooper Tire will benefit from the decline in fuel costs because of cost-cutting measures it implemented during oil's meteoric rise:

[Cooper Tire] seems to be well managed and reacted to rising oil prices by quickly decreasing production of tires in expectation of higher raw costs and lower demand. As they begin to feel oils drop and demand begins to resume they should see growing profits.

Three for free
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 share your opinions about these or any other stocks  you think are starting to rev their engines?

On Oct. 7, 2008, Fool co-founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.