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 investors marked up before their share prices rose over the past three months. My screen returned just 107 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
| Stock | CAPS Rating, 4/11/11 | CAPS Rating, 7/11/11 | Trailing-13-Week Performance |
|---|---|---|---|
| Mela Sciences | ** | *** | 171.6% |
| Movado Group | ** | *** | 35.1% |
| Thor Industries | ** | *** | 30.6% |
Source: Motley Fool CAPS Screener; trailing performance from Aug. 12 to Nov. 7.
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 56 stocks the screen returned, here are three that are still attractively priced but that investors think are ready to run today.
| Stock | CAPS Rating, 7/15/11 | CAPS Rating, 10/14/11 | Trailing-4-Week Performance | P/E Ratio |
|---|---|---|---|---|
| Huntington Bancshares (Nasdaq: HBAN ) | ** | *** | 2.1% | 10.5 |
| Symantec (Nasdaq: SYMC ) | ** | *** | (4.8%) | 19.5 |
| ValueClick (Nasdaq: VCLK ) | ** | *** | 0.2% | 16.1 |
Source: Motley Fool CAPS Screener; price return from Oct. 14 to Nov. 7.
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 might think these companies will go on to beat the market.
Huntington Bancshares
Despite having to push against the tide of Federal Reserve policies, regional banking specialist Huntington Bancshares still managed to report a third-quarter profit of $143.4 million; as loan-loss provisions were slashed, it continued lending more money across the board. Every category of loans, save commercial real estate, grew in the third quarter.
Ben Bernanke's "Operation Twist" was the primary reason Huntington saw mortgage banking income decline, as it is highly sensitive to interest-rate changes, and the Fed has been artificially depressing rates to keep them at historic lows. If the Fed continues to allow banks to "twist" in the wind, Huntington says net interest margins could drop below its targeted range of 3.30% to 3.75%.
Not surprisingly, however, is the thinking that Operation Twist will help the big banking giants like Bank of America (NYSE: BAC ) and Citigroup (NYSE: C ) , which have large mortgage portfolios and are among a group of five of the largest banks that control some 65% of mortgage originators, even if it squeezes their net interest margins, too.
CAPS member blesto thinks that having repaid its TARP loan and subsequently increased its dividend means Huntington is poised to capitalize on the growth opportunities before it. Add the stock to the Fool's free portfolio tracker to keep track of its progress and see whether it's still fit to be included in a real-life portfolio.
Symantec
China has been revealed as the source for many of the hacking attacks targeting corporations and government agencies. Symantec found that 48 chemical companies, including Dow Chemical, were targets of a coordinated attack from China, and the country was central to a five-year campaign against the U.N., government agencies, and corporations, as uncovered by Intel's (Nasdaq: INTC ) McAfee.
It's understandable if companies might be reluctant to move too many mission-critical applications to the cloud, yet doing so can provide a level of efficiency and cost. It also provides an outsized opportunity for Symantec and others to deploy their solutions. It might help explain why it saw a 14% increase in revenues that helped generate profits well ahead of analyst expectations.
With 87% of the CAPS All-Star members rating Symantec to outperform the broad market averages, it's clear they think it has a secure future. You can provide your own opinion of its prospects on the Symantec CAPS page, and then add the stock to the Fool's free portfolio tracker to see whether shareholders will realize the value predicted.
ValueClick
ReachLocal, Living Social, ValueClick, and now Groupon (Nasdaq: GRPN ) show that connecting people to local businesses is a big business. Groupon's IPO was even oversubscribed, as people believed it will be a powerhouse going forward, but some analysts think its core customer base is shrinking and that the company is doomed.
While that might sound ominous for the industry, I think it is a positive development for "old-school" business models like those offered by ValueClick ("old-school" obviously being a relative term here). Its performance-based online advertising operation will provide businesses with results that are measurable and proven once the glitz of Groupon's IPO has faded and investors start demanding performance.
ValueClick reported a 58% increase in third-quarter revenues, generating $0.47 per share in earnings, handily beating Wall Street's $0.44 expectations. CAPS member JohnnySp says that makes it able to continue chugging along, and it may even attract a buyer: "Perfect to be gobbled up by the big boys and/or to continue operating profitably in the growing Internet segment."
Tell us in the comments section below or on the ValueClick CAPS page whether you think it has the capacity to grow further still, and add it to your watchlist to be notified of its progress.
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. 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.
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