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. 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 156 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
CAPS Rating 8/22/11
CAPS Rating 11/22/11
Trailing 13-week Performance
Source: Motley Fool CAPS Screener; trailing performance from Nov. 25 to Feb. 21.
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 59 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run today:
CAPS Rating 11/22/11
CAPS Rating 2/21/12
Trailing 4-Week Performance
Coleman Cable (NAS: CCIX)
JDA Software (NAS: JDAS)
Morgan Stanley (NYS: MS)
Source: Motley Fool CAPS Screener; price return from Jan. 27 to Feb. 21.
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 might think these companies will go on to beat the market.
With China accounting for 40% of the world's copper consumption, signs of a weakening economy caused prices to ease. Coleman Cable, a maker of electrical wire and cable products, had analysts worrying that rising copper prices would hem its ability to grow, but with copper up 11% so far in 2012, its stock is up 31%.
Like competitors General Cable and Encore Wire, it might thrive in the elevated price environment as it could serve to expand its margins. With 93% of the CAPS members rating Coleman picking it to outperform the market indexes, it seems they believe it's on a frozen rope trajectory to higher levels.
Give us your opinion on the Coleman Cable CAPS page and watch for future developments by adding the stock to your Watchlist.
Supply chain software maker JDA Software surprised the market at the beginning of the month with news the SEC was investigating its revenue recognition practices. That's never a good sign -- the stock fell 20% on the news, obviously overlooking the otherwise good revenue numbers it put up. Its reported loss was tied primarily to the settlement of a lawsuit with department store operator Dillard's, which JDA was brought into when it bought i2 Technologies.
The stock bounced back somewhat after management said the probe was related to the timing of revenue rather than the existence of said revenue, so it removed a level of doubt the company was making numbers up. Wall Street is still unanimously bullish about JDA and 93% of the CAPS All-Stars weighing in on it feel the same.
Add the software specialist to the Fool's free portfolio tracker to keep up to date on the SEC investigation.
Investment banking giant Morgan Stanley reported a fourth-quarter loss, partially as a result of a legal settlement with bond insurer MBIA (NYS: MBI) , but it's still a powerhouse and will be the lead underwriter in the Facebook IPO. Yet it's also trying to diversify away from the volatility of its sales and trading unit and is looking to buy out Citigroup's (NYS: C) interest in the joint venture they have together in Smith Barney.
This is a bet that is driven by my belief that housing is bottoming. The economics of the situation and the global monetary authorities will not let these banks collapse into insolvency and thus, they do have an intrinsic valuation, where larger, unnecessary risks actually do create shareholder value because they aren't REAL risks because they are backstopped by society.
Give us your thoughts on the Morgan Stanley CAPS page, then add it to your Watchlist to be advised of how it continues to build up its empire.
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 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 Citigroup. 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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