3 Stocks Ready to Roar
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 other 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 2/28/11
CAPS Rating 5/31/11
Source: Motley Fool CAPS Screener; trailing performance from Jun. 3 to Aug. 31.
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 65 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
CAPS Rating 5/31/11
CAPS Rating 8/31/11
|ChipMOS Technologies (NAS: IMOS)|
|Lexmark (NYS: LXK)|
|Urban Outfitters (NAS: URBN)|
Source: Motley Fool CAPS Screener; price return from Aug. 5 to Aug. 31.
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.
After the bankruptcy of high-profile customer Spansion, and the financial distress suffered by another customer ProMOS, semiconductor test and assembly outfit ChipMOS Technologies was left battered and bruised. Aside from showing how rough and tumble the semi market can be, it highlighted once again the risks associated with high customer concentration. Even now, just five customers account for more than half of revenues at ChipMOS.
But last quarter revenues were up, allowing it to pay down some of its debt obligations. Long-term debt was cut in half from a year ago and is down 32% from the March quarter. At less than three times last year's earnings, it trades at a third of the valuation of Advanced Semiconductor Engineering (NYS: ASX) and half of Amkor Technology (NAS: AMKR) .
The stock has been beaten down considerably but it is making a turnaround. Insiders own 30% of the company and that shows you they are confident in its future.
Chip in with your views on the ChipMOS Technologies CAPS page about whether or not the company will continue moving in the right direction.
Although Hewlett-Packard (NYS: HPQ) ran screaming from the room after peering into computing's future, it wasn't so scared that it was willing to abandon its printer division. That's a business that's keeping many companies afloat. Even troubled Eastman Kodak (NYS: EK) was able to develop a 48% increase in its core inkjet printer and ink business, the one segment that's not fading away.
Revenues for printing and imaging solutions specialist Lexmark rose 1% from a year ago, generating a near-20% increase in profits. It has been targeting the enterprise-level customer, apparently with great success.
Earlier this summer, All-Star cibient found the printer maker not only a cash-generating machine, but cheap, too.
Profitable old tech company, very good valuation here. This is not Kodak nor Xerox. Lexmark generates tons of cash and hasMagic Formula characteristics. ... They have to be on a short list for a LBO or to be acquired very soon by another company like Dell.
You can add Lexmark to the Fool's free portfolio tracker and keep tabs on its progress over the coming quarters.
With inventories building up, teen retailer Urban Outfitters resorted to clearance sales to move some clothes, ultimately hurting margins even though revenues jumped 10% last quarter. Profits beat analyst forecasts, but they were below last year's efforts because of higher costs.
There's good reason to be cautious about its future, but a new 10-million share buyback program can help boost shareholder value. I'm not a big fan of buybacks to boost earnings, it's true, though there are times they can be justified; I view them rather as a low-quality source of growth.
All-Star BoiseKen thought a few months ago it had a loftier valuation than he'd prefer, but Urban Outfitters still had room to move.
p/e ... still give me pause, but they reported a decent quarter. I think there is room to run here -- Also, I love the antrho stores. Beatuiful and one of the only retail spaces I ENJOY..
Let us know on the Urban Outfitters CAPS page whether you should outfit your portfolio with this stock.
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 contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Dell. 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.
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