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 just 119 stocks when I ran it, no doubt reflecting the market’s turmoil during that time, and included these recent winners:
|Stock||CAPS Rating 8/17/12||CAPS Rating 11/16/12||Trailing 13-Week Performance|
|ReneSola Ltd. (ADR) (NYSE:SOL)||**||***||118.3%|
|JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO)||**||***||81.6%|
|YPF SA (ADR) (NYSE:YPF)||**||***||72.7%|
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 40 stocks the screen returned, here are three that are still attractively priced, but that investors think are ready to run today:
|Stock||CAPS Rating 11/16/12||CAPS Rating 2/15/13||Trailing 4-Week Performance||PE Ratio|
|Grupo Financiero Galicia S.A (ADR) (NASDAQ:GGAL)||**||***||0.2&||9.9|
|Hillshire Brands Co (NYSE:HSH)||**||***||7%||5.4|
|Sauer-Danfoss Inc. (NYSE:SHS)||**||***||4.6%||14.2|
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.
Grupo Financiero Galicia
Argentinean banking giant Grupo Financiero Galicia, the country’s largest privately owned bank, just reported higher profits from the year-ago period with wider market share gains in deposits and loans made. Still, it came up short of analyst expectations.
The country’s President Cristina Fernandez wants banks to offer even more loans to businesses in an effort to counteract the slowing economy, so investors might expect the bank to expand those gains even further. She wants banks to loan out amounts equal to about 5% of their deposits on hand, similar to an edict she handed down in the fourth quarter of last year, which may help explain why Financiero Galicia’s metrics grew for the period. Yet I see a ton of risk associated in an investment here.
While the banks were able to comply with the rules by renegotiating many of the loans previously made to borrowers, it seems a recipe ripe for disaster as bad loans get made simply to meet the mandate. Even if in the short run it boosts results, I find it difficult to make investing in companies domiciled there a long-term strategy because of the control Fernandez wants over the Argentinean economy.