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 45 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
CAPS Rating 2/1/11
CAPS Rating 5/2/11
Trailing 13-week Performance
Learning Tree International
Source: Motley Fool CAPS Screener; trailing performance from April 29 to July 29.
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 68 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
CAPS Rating 5/2/11
CAPS Rating 8/1/11
DIRECTV (NAS: DTV)
HCA Holdings (NYS: HCA)
Lincoln National (NYS: LNC)
Source: Motley Fool CAPS Screener; price return from July 1 to July 29.
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.
Between FiOS from Verizon (NYS: VZ) , and DOCSIS 3.0 technology that allows cable operators like Comcast to exceed the speeds the telcos offer, faster broadband seems to be the way of the world. DISH Network (NAS: DISH) is also working on its broadband capabilities by buying bankrupt DBSD, a hybrid wireless phone and broadband services provider.
DIRECTV is taking a different tack. It's perfectly happy to partner with AT&T (NYS: T) and Verizon, providing their broadband services to its customers and vice versa. CAPS All-Star Bama99 also likes its focus in South America:
This is one reason DirecTV added 1.2 million new customers in Latin America in 2010. You want to own a piece of this growth. DirecTV's operations in Central and South America are already providing over 15% of the company's operating earnings, and this year looks even better than last.
Let us know on the DIRECTV CAPS page whether marching to a different drummer will pay off for the satellite TV supplier.
The debt ceiling agreement in Washington may have removed a bit of uncertainty from the markets, but it piled it on the health care industry. Analysts fear the deal could lead to significant Medicare spending cuts. Shares of insurer WellPoint, hospital operator Tenet Healthcare (NYS: THC) , and HCA Holdings all dropped on the prospects.
Across-the-board Medicare cuts could crimp the reimbursements these companies receive, since the reductions would target payments to providers, rather than focusing on cutting patient benefits.
Highly rated CAPS All-Star PsychoDr stated earlier this year that he expected HCA to trade lower than its peers because it is a recent IPO. However, universal health care is likely to boost it in the long run:
A new IPO, this company will trade at a discount to it's peers for the short term because of debt, but expect that brokers will start talking about it soon. I expect this to also start paying a dividend once the debt load is reduced more. HEalthcare to me is a long term growth opportunity and owning a hospital stock rounds out my exposure to the overall industry.
You can add HCA to the Fool's free portfolio tracker and keep tabs on whether meaningful cuts ever materialize.
Lincoln National is one of the largest sellers of variable annuities, an investment that's not exactly the right choice for many people. Yet Lincoln itself has been a difficult place to put your money, too. Its stock is off more than 20% from its 52-week highs.
But ratings agencies think things are looking up for the insurer, with Moody's promoting the company's debt outlook to positive from stable, the second upgrade it's made. (Lincoln went from negative to stable in May 2010). A.M. Best also views it as stable, and has assigned an "a-" rating on Lincoln's long-term unsecured senior notes.
CAPS member SirInvestor says demographic trends will serve Lincoln well in the future: "In the coming years millions of baby boomers will began to retire. Lincoln, being a large provider of retirement services, is in a good position to take advantage of this industry growth."
Let us know on the Lincoln National CAPS page whether this business is ready to climb to the heights once again.
Three for free
Are these companies still good values, 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 thisarticle was published Motley Fool newsletter services have recommended buying shares of WellPoint and AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.
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