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 were marked up by investors before their share prices rose over the past three months. My screen returned just 105 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:

Stock

CAPS Rating 6/8/11

CAPS Rating 9/8/11

Trailing-13-Week Performance

Zumiez*****66.3%
Kenexa*****51.6%
Vitacost******48.7%

Source: Motley Fool CAPS Screener; trailing performance from Sept. 9 to Dec. 8.

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 69 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:

Stock

CAPS Rating 9/8/11

CAPS Rating 12/8/11

Trailing-4-Week Performance

P/E Ratio

Darden Restaurants (NYS: DRI) *****(9.1%)12.7
Generac (NAS: GNRC) *****5.4%20.5
MGM Resorts (NYS: MGM) *****(4.2%)1.8

Source: Motley Fool CAPS Screener; price return from Nov. 11 to Dec. 8.

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.

Darden Restaurants
You might be family when you're dining at Olive Garden, but diners are treating the chain like a guest who's overstayed his welcome. Same-store sales dropped 5.7% last month after falling 2.7% in October and Darden Restaurants says the chain will likely report a 2.5% decline for the entire quarter. After McDonald's (NYS: MCD) offered up some appetizing earnings results, investors can be forgiven for hoping the casual-dining segment would have fare just as tasty, but value-oriented fast food seems to be just what consumers are looking for.

According to NPD Group, casual-dining and midscale restaurants, which comprise 11% and 10%, respectively, of the industry's eateries -- presenting chains like Olive Garden, P.F. Chang's (NAS: PFCB) , and DineEquity's (NYS: DIN) Applebee's -- have suffered a steady decline in diners since 2009. Fine dining, which was hurt perhaps the worst in the recession, has been the only steady grower.

CAPS member jfreedom sees Darden as offering several strong brands (it also owns Red Lobster and Bahama Breeze) that the markets have unfairly put a fork in: "Unfairly punished for one brands data on a strong company. Time for a fool to buy."

Want to dish on Darden? Head over to the Darden Restaurants CAPS page and add the stock to the Fool's free portfolio tracker.

Generac
When the East Coast got a foot or more of snow dumped on it just before Halloween, knocking out power for days in some areas, I felt fortunate I had a standby generator to keep the lights on at my house. Generac dominates the market for such backup power supplies, with a 70 share and it's predicting sales will surge 30% in the current quarter.

Unless and until investments are made in the power grid to make it more stable, the need for standby generators will remain and Generac will capitalize on it. Residential product sales jumped 60% last quarter, but even commercial sales saw a 27% increase. Even Briggs & Stratton (NYS: BGG) , its primary competitor, enjoyed 40% growth in power generation equipment on the strength of portable generator sales.

CAPS members dreamjob says Generac keeps generating significant amounts of free cash flow to keep a warm glow going:

GNRC has generated Owner Earnings over the past 2.5 years, and they are growing. Insiders are buying, and the price is right (looks to be selling at intrinsic value). Earnings quality is good, and growth prospects are promising.

Add Generac to the Fool's free portfolio tracker to see if it can continue powering up.

MGM Resorts
Even if it feels like we're rolling the dice these days on whether Europe will survive or collapse, the Chinese seem to take no notice and instead flock to the island oasis of Macau, where they're all too willing to lay down significant sums of money. According to government statistics, gaming revenue in Macau rose 33% in November, though that was off from October's record because that month featured a week-long holiday.

So expect MGM Resorts, Las Vegas Sands (NYS: LVS) , and other casino operators with a stake in the island to see their revenues rise as well. However, it is a competitive environment there and new hotels constantly going up may cannibalize just how much any one particular gambling hall takes in.

And if online gambling is legalized again in the U.S., as CAPS member stpatrick31782 suspects, MGM could reap the rewards as it was one of the stalwarts in the business through its MGM Mirage Online division. Tell us in the comments section below or on the MGM Resorts CAPS page what the odds are of success, 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.

At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Darden Restaurants. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not 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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