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 119 stocks, no doubt reflecting the market's turmoil during that time, and included these recent winners:
CAPS Rating 10/13/11
CAPS Rating 1/13/12
Source: Motley Fool CAPS screener; trailing performance from Jan. 6 to April 3. CAPS rating is out of five stars.
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 52 stocks the screen returned, here are three that are still attractively priced, but which investors think are ready to run:
CAPS Rating 1/13/12
CAPS Rating 4/12/12
Trailing- 4-Week Performance
Bed Bath & Beyond (NAS: BBBY)
Jefferies Group (NYS: JEF)
VOXX International (NAS: VOXX)
Source: Motley Fool CAPS screener; price return from March 9 to April 3. CAPS rating = out of five stars.
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.
Bed Bath & Beyond
Home goods retailer Bed Bath & Beyond reported fourth-quarter results the other day that handily beat analyst expectations. Despite a bit of margin compression from a promotion environment, the impact of former rival Linens 'n' Things' going bankrupt is showing up on the top and bottom lines. As consumers open their wallets again and spend on their homes, they are flocking to Bed Bath & Beyond, as well as Pier 1 Imports (NYS: PIR) and Williams-Sonoma (NYS: WSM) , both of which also reported better-than-expected earnings.
It's a rising tide that's lifting everyone's boat, but Bed Bath should be able to ride the way higher as it's learned to operate more efficiently than its rivals. SG&A expenses fell 180 basis points in the fourth quarter despite a surge in revenues, and as CAPS member stationfool notes, it carries no long-term debt. All the growth it achieves is paid for out of the prodigious cash it generates. That's a powerful business operation, so tell us on the Bed Bath & Beyond CAPS page if it's time to put this one to bed.
Also add the home goods retailer to the Fool's free portfolio tracker to see if it can furnish additional high returns.
Only on Wall Street can you run a company into the ground, steal customers' money, hide your malfeasance from regulators and Congress, and still be eligible for a bonus! MF Global, the corrupt and now bankrupt commodities and equities clearinghouse, has almost $1 billion missing from customer accounts but its COO, CFO, general counsel, and others are lining up to receive "performance" bonuses.
Not everyone operates that way. Jefferies Group had a rough year last year, and its CEO saw his pay rightly drop 8% and top executives gave back bonuses they otherwise qualified for. Morgan Stanley and Goldman Sachs also cut compensation to top executives, though it's hard to work up any empathy for Lloyd Blankfein getting only $7 million in restricted stock instead of the $12 million he pocketed the year before.
Jefferies had to work hard to reassure investors it was not MF Global and didn't have the same European exposure it did. As a matter of fact, it ended the first quarter with what may be a timely short on Spain, which seems about to follow Greece down into the muck.
Although there's some consternation among CAPS All-Stars, where nearly a quarter of those rating the investment house think it will underperform the market, let us know on the Jefferies Group CAPS page if you feel fine knowing that on Wall Street, no matter which way a company goes, management will still land on its feet.
Already running 55% higher than where it started 2012, and having more than doubled in value in the past six months, sound system specialist VOXX International (formerly known as Audiovox) looks poised to continue its meteoric rise. Having bought automotive sound outlet Klipsch, VOXX is gaining new business in the car market, though it's making headway across all its product lines and even internationally.
CAPS All-Stars are again reticent at giving their imprimatur, with less than 60% of them thinking it can beat the Street, but tell us if it sounds good to you on the VOXX International CAPS page.
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 forever.
At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Pegasystems, The Goldman Sachs Group, Williams-Sonoma, and Bed Bath & Beyond. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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