3 Stocks Ready to Roar

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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 23 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

Cepheid*****25.1%
Wausau Paper*****14.3%
Zygo*****13.9%

Source: Motley Fool CAPS screener; trailing performance from July 15 to Oct. 10.

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 64 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

Akorn (NAS: AKRX) *****(2%)17.4
Scotts Miracle-Gro (NYS: SMG) *****(4.7%)16.0
Staples (NAS: SPLS) *****0.1%11.4

Source: Motley Fool CAPS screener; price return from Sept. 16 to Oct. 10.

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.

Akorn
Generic-drug maker Akorn has 22 abbreviated new drug applications filed with the FDA with a potential market opportunity of $2.8 billion. It's been a U.S.-based specialty pharmaceutical, but with the acquisition spree it's been on it now has the opportunity to go global. It recently announced that it will acquire Indian drugmaker Kilitch Drugs for $52 million. Seems a good price to pay for the five manufacturing plants, a contract manufacturing facility, and international business and products, putting it in a position to take on Dr. Reddy's Laboratories.

At less than $800 million, Akorn's market cap makes it a much smaller player in the space than, say, Teva Pharmaceuticals (NAS: TEVA) , which is orders of magnitude larger, but this deal and others it has recently made give it a good opportunity to grow. Investors just need to be mindful that when companies make lots of acquisitions, it becomes more difficult to value them, let alone have them perform as they have.

As CAPS member nibs61 sees it:

This is a buyout candidate but if not can really start making a dent in the generic market. This market will start growing as many patents are coming to maturity. Either way [it's] a win / win for this great [run] company.

Share your thoughts on the Akorn CAPS page if you think it will be a global player, and then put it on your Watchlist to keep track of its progress.

Scotts Miracle-Gro
Hurricane Irene has proved problematic for more than just insurance companies. Lawn-care specialist Scotts Miracle-Gro found demand was dampened in the wake of the storm that ripped up the East Coast. Yet this year has seen a lot of unsettled weather, which has wilted Scott's performance, as sales fell 2% and profits came in 10% less than what it had forecasted in August.

That might prove a problem for Home Depot (NYS: HD) and Lowe's (NYS: LOW) , which are big distribution points for the fertilizer and seed company. But the grass is still going to grow and we're still going to want green lawns, so with the stock down 20% over the past six months, this could be a good opportunity to grow some of your own profits.

The broad CAPS community is looking for it to put down roots, with 86% of those weighing in on the company seeing more green in its future. Tell us in the comments section below or on the Scotts Miracle-Gro CAPS page whether you think investors ought to let this stock grow like a weed in their portfolios, and add it to your Watchlist to be notified of its progress.

Staples
When it comes to office-supply maven Staples, I see a business still limping along just as badly as the general economy, which probably isn't all that surprising. Yet compared with Office Depot (NYS: ODP) and OfficeMax, Staples is doing much better, but until we see business able to shake off the ennui that grips it, there doesn't seem to be much of a catalyst for growth here anytime soon.

However, these discounted prices -- it trades 39% below its 52-week highs -- make it an exceptionally cheap entry point to the leading office-supplies retailer. When the economy finally turns, and it eventually will, Staples will be leading the way higher.

You can provide your own opinion of its prospects on the Staples CAPS page, and then add the stock to the Fool's free portfolio tracker to see whether it can organize a recovery.

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.

At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Teva Pharmaceutical Industries.Motley Fool newsletter serviceshave recommended buying shares of Teva Pharmaceutical Industries, Staples, Dr. Reddy's Laboratories, Lowe's, and Home Depot and writing covered calls in Lowe's Companies. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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