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 134 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
CAPS Rating 7/19/11
CAPS Rating 10/19/11
Source: Motley Fool CAPS Screener; trailing performance from Oct. 21 to Jan. 19.
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 53 stocks the screen returned, here are three that are still attractively priced and which investors think are ready to run today:
CAPS Rating 10/19/11
CAPS Rating 1/19/12
Bank of New York Mellon (NYS: BK)
Motorola Solutions (NYSE: MSI
Sinopec Shanghai Petrochemical (NYS: SHI)
Source: Motley Fool CAPS Screener; price return from Dec. 23 to Jan. 19.
You can run your own version of this screen over on CAPS; just remember that the data is dynamically updated in real time, so your results may vary. That said, let's examine why investors think these companies might go on to beat the market.
Bank of New York Mellon
The CAPS community is starting to deposit custodial banks in their accounts. Last week Northern Trust was picked as a stock primed for a big move, and this week the community's backing the world's largest such bank, Bank of New York Mellon. Yet the trust in trusts comes at a time when they've experienced a very soft, risk-averse environment. Including State Street, all three of the big custodial institutions fell short of revenue expectations as the sovereign debt crisis reached its peak.
BNY Mellon also saw its profits fall by 26%, coming in well short of Wall Street's estimates, as foreign exchange volumes dried up. At the same time, though, it is adding more clients, so it expects the situation to eventually reverse itself. For all the charges it takes now, it anticipates being able to gain profitability later on.
The two dozen analysts tracking BNY are unanimous it will outperform, and though the CAPS community is a little more circumspect, 86% of the 551 members rating the bank believe it will beat the broad indexes. I've added my name to those thinking it will succeed, but head over to the Bank of New York Mellon CAPS page and deposit your thoughts on its future. Track its progress by adding the stock to My Watchlist.
As one half of the split from Motorola Mobility, communications equipment maker Motorola Solutions is ready to telegraph its future when it reports earnings next week. Tune in to any football playoff games this weekend (Go, Giants!) and you'll likely see the coaching staff equipped with Motorola-branded headsets. As the premiere communications equipment specialist, it has contracts across all business lines but also at all levels of government.
And that's where the risk is. Due to budgetary constraints, it might not be able to sell as much communications equipment as anticipated. Further, despite last year inking a three-year extension of its deal with Sprint (NYS: S) for the iDEN network, the carrier is phasing it out and focusing more on CDMA, which hurts Motorola's ability to score with more handsets.
That could be why almost 20% of the more than 2,400 CAPS members rating the communications gear specialist believe it will outperform the market. Add Motorola Solutions to the Fool's free portfolio tracker to receive communications on its developments.
Sinopec Shanghai Petrochemical
China is serious about its energy future, using its financial resources to gobble up important oil and gas plays around the globe. Chesapeake Energy sold CNOOC a third of its assets in the Eagle Ford shale play last year while Devon Energy (NYS: DVN) just inked an agreement with Sinopec for one third of its interests in five different regions: the Tuscaloosa Marine Shale, the Niobrara, the Mississippian, the Utica shale, and the Michigan Basin. The U.S. energy business is hot and China is cashing in on it.
With just 188 CAPS members offering an opinion on Sinopec, it's a relatively low-flying government-owned petrochemical company -- both its parent China Petroleum & Chemical (also called Sinopec) and CNOOC have garnered over 1,100 and 1,300 ratings, respectively. Yet in all three cases, the investment community sees the Chinese government entities getting what they want and getting ahead. I've also marked Sinopec Shanghai to beat the Street, but give us your thoughts on the Sinopec CAPS page, then add it to My Watchlist to be alerted on any additional deals and 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 -- it won't be around for long.
At the time thisarticle was published Fool contributorRich Dupreyowns shares of Motorola Solutions, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Devon Energy.Motley Fool newsletter serviceshave recommended buying shares of Chesapeake Energy. 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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