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 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 113 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
CAPS Rating 7/11/11
CAPS Rating 10/11/11
Trailing 13-week Performance
|Magnum Hunter Resources||**||***||45.5%|
Source: Motley Fool CAPS Screener; trailing performance from Oct. 14 to Jan. 11
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 80 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
CAPS Rating 10/11/11
CAPS Rating 1/11/12
Trailing 4-Week Performance
|Middlesex Water (NAS: MSEX)||**||***||2.1%||20.9|
|Northern Trust (NAS: NTRS)||**||***||8.4%||16.0|
|Unisys (NYS: UIS)||**||***||(3.1%)||7.1|
Source: Motley Fool CAPS Screener; price return from Dec. 16 to Jan. 11
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.
With water everywhere inundating us in the third quarter, there was little need for customers of Middlesex Water to turn on their faucets. Serving communities in New Jersey and Delaware, Middlesex saw revenues suffer as one of the wettest Augusts on record - thanks to Hurricane Irene - swamped the East Coast. Although it's flying under the radar of much of Wall Street and Main Street radar right now, it's record of raising dividends for 39 straight years ought to gain it some attention. The annual dividend is currently $0.74 a share and yields 4%.
The CAPS community is starting to catch on, however, and 84% of those rating the utility believe it will outperform the broad indexes. I've added my name to those thinking it will succeed, but head over to the Middlesex Water CAPS page and develop a case for your position. Track its progress by adding the stock to your watchlist.
Along with Bank of New York Mellon and State Street Finance, Northern Trust is considered one of the top tier custodian banks, or trusts, but it's also the smallest of the three and analysts like the fact that half the country's millionaires live within a short drive of one of its offices, giving it a target rich environment to seek out new clients.
Northern Trust's interest-bearing deposits surged 20% in the quarter, reflecting its ability to attract new customers but also that it's hording its cash. While that can be an indication of a bank's balance-sheet strength, as it is source of liquidity, deposits can also be a burden because in this environment, banks tend to put them at the Federal Reserve or in other short-term investments, thus earning little interest on them. Northern Trust's net interest income rose just 10% in the quarter, primarily as a result of putting its money in these low-interest-bearing vehicles.
Still, with loan-loss provisions declining, charge-offs off, and non-performing loans down, Northern Trust is in a better financial position, which could be why 85% of the CAPS All-Stars rating the custodian bank believe it will outperform the market. Add Northern Trust to the Fool's free portfolio tracker to see if it's worth depositing in your account.
Global IT specialist Unisys was once a driving force in computers back when it was separate companies operated as Sperry-Univac and Burroughs, but today it is a much smaller, more focused company, and it continues to shed non-core businesses while focusing on outsourcing, still a high-margin operation.
The restructuring is still in play, and with full-year earnings due at the end of this month, analysts are expecting Unisys to report profits that are a third lower than they were a year ago. However, that forecast is almost 80% higher than what the consensus was expecting at the end of the third quarter, and with Wall Street also boosting next year's outlook as well, it suggests they see the profit picture continually improving at the IT shop.
Because a top-down restructuring carries a lot of risk, a third of the CAPS All-Stars rating Unisys have their doubts it can beat the market averages. I've marked it on CAPS to beat the Street, but give us your thoughts on the Unisys CAPS page, then add it to your Watchlist to be alerted on any developments.
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, then check out this free report on dividend-paying stocks whose engines are all revved up. You can read it for free, but hurry, because it won't be around for long.
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. 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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