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 51 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
CAPS Rating 5/25/11
CAPS Rating 8/25/11
LaSalle Hotel Properties
Source: Motley Fool CAPS Screener; trailing performance from Aug. 12 to Nov. 11. CAPS rating = out of five.
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 67 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
CAPS Rating 8/12/11
CAPS Rating 11/11/11
Axcelis Technologies (NAS: ACLS)
GSI Group (NAS: GSIG)
Majesco Entertainment (NAS: COOL)
Source: Motley Fool CAPS Screener; price return from Oct. 14 to Nov. 11. CAPS rating = out of five.
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.
There's no argument the chip industry was in a major slump this year as consumer demand weakened due to economic concerns here and abroad. But chip makers like ARM (NYS: ARMH) are looking for a turnaround next year, which would be a boon to Axcelis Technologies, which helps chip makers improve yields. It points to a recent contract win, with what it describes as one of the world's largest device manufacturers, that will help it produce leading-edge CMOS image sensor devices, as proof things are looking up after a disappointing third quarter.
CMOS image sensors received greater scrutiny recently when OmniVision Technologies (NAS: OVTI) lost some real estate to Sony in Apple's new iPhone. If there's one area in Silicon Valley that is growing, it's smartphone mobile technology, and the iPhone is leading the way.
ACLS has shown some signs that it is picking up. It underperformed most of the year with weak profits and slow sells. ACLS's second quarter ended well with better than expected profits. Revenues and EPS exceeded the high end of guidance, and the gross margin improved significantly. ACLS seems to be coming back the game.
Add the stock to the Fool's free portfolio tracker to keep track of its progress and see whether it can chip away at the lethargy.
Precision technology maker GSI Group is seeing significant growth opportunities in its industrial laser segment, which witnessed 18% growth year over year, picking up the slack that's held back Axcelis -- its semiconductor systems segment, which fell 16%. While precision motion technologies remained its largest line of business, though it also declined marginally in the quarter, it is still its most profitable segment, generating margins of 47.5%, up from 47% a year ago. Laser profits shrank year over year, not surprising, really, since other leading industrial laser makers, like Rofin-Sinar (NAS: RSTI) , are also not burning up the charts. After emerging from bankruptcy protection last year, GSI has been gaining momentum once again.
All but one of the 12 CAPS All-Stars rating GSI believe it will outperform the broad market averages. You can focus your laser-like opinion on the GSI Group CAPS page. Then add the stock to the Fool's free portfolio tracker to see if it can precisely position itself for growth again.
While Majesco Entertainment is looking to take advantage of the boom in motion-capture generated by Microsoft's Kinect -- introducing games like Hulk Hogan's Main Event, Motion Explosion!, and Twister Mania!, which takes the original Twister game and digitalizes it for the motion-based platform -- the bread and butter of its business remains Zumba Fitness, which generates the vast bulk of its revenues.
So when it got sued the other day by Impulse Technology, which claims Majesco is infringing on its patents that relate to controlling in-game actions by manipulating a Wii Remote or Wii Balance Board, it's understandable why the stock would take a hit, since those are part and parcel of Zumba's attraction. Nintendo has faced such lawsuits before for its innovations and won, and it is a target of the patent infringement lawsuit as well, along with Electronic Arts (NAS: ERTS) . The Fool's Anders Bylund sees this as little more than a temporary distraction for Majesco, saying "this lawsuit isn't likely to hurt Majesco beyond the cost of lawyering up."
CAPS member grandpacrackers subscribes to the Peter Lynch notion of buying what you know:
My daughters bought the new work out videos and they like them. They were turned onto them by friends that liked them. My boy likes the games they produce. Now, there's a reason to gamble on a stock whose numbers all seem to be in line.
Tell us in the comments section below or on the Majesco Entertainment CAPS page whether it's still a cool stock to back into, 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 thisarticle 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 Rofin-Sinar Technologies, Microsoft, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Rofin-Sinar Technologies, Nintendo, Apple, and Microsoft.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple and creating a bull call spread position in Microsoft. 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.
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