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 77 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:
CAPS Rating Oct. 27, 2011
CAPS Rating Jan. 27, 2012
Source: Motley Fool CAPS Screener; trailing performance from Jan. 27 to April 26. CAPS rating = 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 36 stocks the screen returned, here are three that are still attractively priced, but that investors think are ready to run today:
CAPS Rating Jan. 27, 2012
CAPS Rating April 26, 2012
Big Lots (NYS: BIG)
Changyou.com (NAS: CYOU)
Ingles Markets (NAS: IMKTA)
Source: Motley Fool CAPS Screener; price return from March 30 to April 25. CAPS rating = out of five stars.
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.
Closeouts can be big business, but Big Lots is finding it increasingly difficult to go up against the big boys of discounting like Wal-Mart and Target (NYS: TGT) . Quarterly earnings results last month resulted in a plummeting stock price, with shares down more than 20%. The weak link for the closeout specialist was in electronics and consumables, two areas that traditionally had been Big Lots' strong points, with the latter group representing almost one-third of all sales.
With its comps expected to go negative next quarter, the market has decided to discount the stock. Yet at less than 10 times estimated earnings and trading at less than half its sales, Big Lots looks pretty cheap here. Apparently it does to the CAPS community, too, where 80% of those rating it believe it will outperform the market indexes. But with one in five thinking it's still going to lag, you might want to add Big Lots' stock to the Fool's free portfolio tracker to see if it will be discounted even more.
I'll admit to being queasy about Changyou.com's ability to beat the markets, but the online game subsidiary of Sohu.com (NAS: SOHU) is performing better than its parent, beating analyst expectations on both the top and bottom line as new game introductions were well received and bolstered results. And with a handful more games scheduled to be released this year, Changyou might just have a change of fortune.
Currently the stock is off 56% from its 52-week highs, but Wall Street is confident in its belief it will beat the indexes and 82% of those rating it on CAPS think the same thing. Let us know on the Changyou.com CAPS page if you expect it will soon be saying "Game on!" again.
Winn-Dixie and its new owner, Bi-Lo, may be more well-known in the southeast than Ingles Markets, but Ingles just reported $1.8 billion in net sales over the first six months of its fiscal year and had $3.6 billion in 2011, putting it well ahead of Bi-Lo, Food Lion, and Weis Markets. It tries to juice its returns by owning 70 shopping centers, most of which house one of its supermarkets, but that segment has seen falling revenues over the past few years. Last quarter, with grocery sales rising 1%, shopping center rental revenue fell almost 13%. Still, that's a minuscule portion of its revenue stream, and with grocery sales growing, all but two of the three dozen CAPS All-Stars rating the supermarket chain think it will beat the broad market averages.
Tell us on the Ingles Markets CAPS page or in the comments section below whether the dual-track plan it follows -actually, triple-track, as it also processes milk -- allows it to capitalize on its strengths.
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.Motley Fool newsletter serviceshave recommended buying shares of Sohu.com and creating a diagonal call position in Wal-Mart Stores. 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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