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 143 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
CAPS Rating (out of 5) as of Sept. 9, 2011
CAPS Rating (out of 5) as of Dec. 9, 2011
Source: Motley Fool CAPS Screener; trailing performance from Dec. 9 to March 8.
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 (out of 5) as of Dec. 9, 2011
CAPS Rating (out of 5) as of March 8, 2012
Coinstar (NAS: CSTR)
Kohl's (NYS: KSS)
VistaPrint (NAS: VPRT)
Source: Motley Fool CAPS Screener; price return from Feb. 10 to March 8.
You can run your own version of this screen over on CAPS; just remember that the data are 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.
Even kiosk movie rental king Redbox realizes the future of video is streaming, which is why its parent Coinstar is teaming up with Verizon to offer streaming video and DVD rentals. Yet my investment thesis for Coinstar has long been the DVD rental business, and that it wasn't a replacement service for Netflix (NAS: NFLX) but a supplement to it. That's why it gained so many customers in the wake of its rival's pricing fiasco, as viewers could vote with their feet to protest the move.
DVDs are not dying yet -- one day, but not anytime soon. Which is good, because I think once Coinstar becomes a movie streaming company, a lot of the value is lost. With Comcast, Amazon.com, and the plethora of other streaming services coming online, Redbox becomes just one more offering a commoditized product. In the meantime, though, I agree with CAPS member RhodeIsland that there's still lots of star power remaining here:
Picking up the pieces that Netflix and Blockbuster left behind. Nobody else wants this business but the consumer is still there until somebody can stream decent, early in-the-release movies for $2.00. Redbox can raise their prices up to $1.50 without losing customers, so they will.
Add Coinstar stock to your watchlist to see what it releases next.
J.C. Penney's (NYS: JCP) decision to clean house and rearrange the furniture could mark an appropriate time for mid-tier rival Kohl's to grab some market share. Particularly after a gloomy February that saw same-store sales fall even though total revenues rose, the department store chain needs an opening like this to recover. Penney is likely to lose some customers as it switches to a low-price everyday policy and advertising that suggests it won't be sponsoring any more of its early morning "doorbuster" sales.
Not that Kohl's needs to get too promotional, but contrasting its position to Penney's would serve it well. With 83% of the CAPS members rating Kohl's to outperform the broad market averages, it's apparent they believe the situation will continue to be favorable for it to regain its footing. Let us know on the Kohl's CAPS page if it's an investment you should be making, too.
In the fourth quarter last year, business marketing specialist VistaPrint caused consternation, with its 2012 forecast filled with slowing revenues and initiatives that would offer up meager earnings. It's recovered though so far this year, with its shares rising 22%. Its first-quarter earnings report seemed more in line with the bullish economic picture we've seen: Revenues came in 28% from the year ago period, and profits were up too, with both top and bottom lines ahead of analyst expectations.
Although it's investing heavily in its business to attract more customers over the next few years, that's a plan we like that can see it paying dividends for years to come. CAPS All-Stars are slightly more bullish than their brethren in the broader investment community, but both groups see it outperforming the market. Give us your thoughts on the VistaPrint CAPS page, then add it to your watchlist to be alerted to when the customers come calling.
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 contributor Rich Duprey owns shares of Winn-Dixie Stores, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Netflix, Vistaprint, and Amazon.com. 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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