Wednesday's Top 4 Rocket Stocks

Ask a cheapskate value investor to buy a stock that's achieved a new 52-week high, and you'll get one of two responses:

  1. Hysterical laughter.
  2. Sudden nausea.

Pity them, Fool.

How many times has on-demand software king salesforce.com (NYSE: CRM  ) touched a new 52-week high on the way to becoming a three-bagger in three years? Too many to count, of course. (See for yourself.)

Let that be a lesson. Rocket stocks -- that is, high-growth stocks that are also realizing heavy price appreciation -- are sometimes worth buying.

Rocket stocks, not rocket science
And sometimes, they're worth buying in bulk. Think of Baidu.com. My buddy Rick Munarriz recommended China's top search engine to our Motley Fool Rule Breakers subscribers at $83.37 in October of last year.

I thought he was nuts. I mean it. The stock was both expensive and on a tear. So I argued against buying it in a January duel here at Fool.com. Now Baidu is nearing a four-bagger. How I wish I had listened to what Rick was telling me those months ago.

Don't do as I did. Never assume that an expensive stock is too expensive. What looks like a cliff could really be base camp on a climb toward the summit of Everest. Each day in this column, with the help of the 75,000 pro and amateur stock pickers in our Motley Fool CAPS community, we'll seek to find those still climbing.

Our candidates will be found daily in the 52-week high lists at The Wall Street Journal. But few highfliers will make the cut; we're looking for stocks expected to boost net income by at least 15% annually over the next five years, and which earn at least three of five stars from our CAPS contingent.

Unfortunately, that screen doesn't work too well today. Wednesday's bloodbath in the broader market, once again fueled by economic concerns, took care of that. Thus, I can give you only four rocket stocks to ponder. They are:

Company

Closing Price

CAPS Rating

(5 max)

5-Year Growth Estimate

52-Week

Range

NovAtel (NASDAQ:NGPS)

$49.86

*****

20.0%

$30.72-$49.90

Business Objects (NASDAQ:BOBJ)

$61.34

***

17.3%

$33.65-$61.58

MWI Veterinary (NASDAQ:MWIV)

$42.81

*****

16.3%

$30.00-$43.16

Constellation Energy (NYSE:CEG)

$99.05

*****

16.0%

$66.12-$101.24

Sources: The Wall Street Journal, Yahoo! Finance, Motley Fool CAPS.

Our list features a couple of promising (though speculative) small-cap stocks. Yet these tiny titans can create astounding returns if bought before they get discovered.

Witness business intelligence specialist Business Objects, which, thanks to a $6.8 billion bid from SAP, has posted a 60% gain over the past year. NovAtel, too, is being acquired by Swedish rival Hexagon. Its shares are up 25% over the past year. By contrast, the S&P 500 has remained essentially flat over the same period.

I like chicken, I like liver ... Meow Mix, Meow Mix, please deliver
MWI Veterinary, which specializes in distributing medicines to veterinarians, has also been a market-beater, if not as spectacular as Business Objects. Nevertheless, its 26.8% return since last November is nothing to growl at.

Nor is its five-star rating in CAPS. Investors -- 38 of them, at least -- believe that MWI will remain a winner, and I can understand why. Pets are a huge business here in the U.S. PetSmart (Nasdaq: PETM  ) has booked $4.5 billion in revenue over the trailing 12 months. PetMed Express (Nasdaq: PETS  ) has improved its top line by more than 20% annually since 2004.

And MWI? It's improving, mostly:

Return on Capital

FY 2007

FY 2006

FY 2005

FY 2004

Return on assets

6.7%

7.1%

5.9%

5.8%

Return on capital

11.1%

11.7%

9.7%

9.9%

Return on equity

11.7%

12.8%

7.2%

6.8%

Source: Capital IQ, a division of Standard & Poor's.

Those are good numbers. But they're not great, which is what I'd prefer -- especially since MWI sports an above-average 1.6 PEG ratio. Only premium stocks deserve premium valuations, and MWI hasn't yet earned the right to charge investors the hot-stock markup.

But that's just my opinion. What's your take? Would you buy MWI at these prices? Let us know by signing up for CAPS today. It's 100% free to participate.

See you back here on Monday for more rocket stocks.


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