5 More Unloved Growth Stocks

Ah, the joys of skepticism.

We rebel investors at Motley Fool Rule Breakers believe that the multibaggers in the making, though not often cheap by the numbers, are always misunderstood. The extraordinary skepticism they face makes them excellent value stocks.

Hitting just one of these home runs can make all the difference to your portfolio. Just ask David Gardner, who bought at a split-adjusted price of $3.24 a share in 1997. He's up more than 2,400% since.

Stocks like Amazon have helped David to produce nine years of better than 20% average annual returns in the real-money Rule Breaker portfolio, even while suffering stinging losses from Guitar Center and 3Dfx, among others.

Let the haters be your friends
David continues this home run investing tradition today at the Fool's Rule Breakers newsletter service. You can follow the moves of his rebel alliance with a free trial of the service. Or, if you prefer to pick your own stocks, there's Motley Fool CAPS, a 100% free stock-picking community whose 99,000 participating investors rate stocks on a scale of one to five stars. More than 5,600 rated stocks are in the database right now.

How can this help you? Each week, using CAPS, we'll search for one- and two-star stocks that have at least 5% of their available shares sold short but are expected to grow their earnings by no less than 15% over each of the next five years.

Let's have the list
Here are today's unloved growth stocks:


CAPS Rating (out of 5)

Short Interest

5-Year Growth Estimate

Lamar Advertising (NASDAQ:LAMR)




Life Time Fitness (NYSE:LTM)




Polo Ralph Lauren (NYSE:RL)




Travelzoo (NASDAQ:TZOO)




Red Hat (NYSE:RHT)




Sources: Motley Fool CAPS, Yahoo! Finance.

Bear in mind that this isn't a list of recommendations. Instead, I offer these stocks as candidates for further research.

Not many worthy choices, are there? Life Time Fitness and its 0.87 PEG ratio would be worthwhile if the company were as fiscally fit as it needs to be. Travelzoo is head-faking when it doesn't need to. And, as much as I like Polo Ralph Lauren, I'm with those who fear a broad decline in retail as a result of the slowing U.S. economy.

Hand me my Red Hat
What to do? Turn to tech. Here, specifically, I'm looking at Red Hat. The top Linux distributor earns my vote for two reasons. First, free cash flow, though not as generous as it has been in years past, remains very healthy:

Numbers (in Millions)

FY 2008

FY 2007

FY 2006

FY 2005






Free cash flow





FCF margin





Source: Capital IQ, a division of Standard & Poor's. Red Hat's fiscal year ends on the last day of February of the named year.

Second, I'm thrilled to see the company moving away from desktops, since the corporate data center has been Red Hat's bread and butter.

And it should continue to be. As a server operating system, Linux recently overtook Windows Server 2003 in terms of reliability. Red Hat and Novell (Nasdaq: NOVL  ) , specifically, saw reliability -- measured in terms of server downtime -- improve by an average of 75% from 2007 to 2008. That bodes well for future enterprise sales and, therefore, the stock.

I'm not the only one who thinks so. Of those who have rated Red Hat in CAPS, the past five All-Star investors -- those whose picks have outperformed at least 80% of the broader community -- believe the stock will be beat the S&P 500 in the coming months and years.

I agree. But I'm more interested in what you think. Would you buy Red Hat at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

See you back here next week for five more unloved growth stocks.

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Related Tickers

10/26/2016 1:14 PM
LAMR $64.50 Up +0.17 +0.26%
Lamar Advertising CAPS Rating: **
LTM.DL $0.00 Down +0.00 +0.00%
Life Time Fitness CAPS Rating: *
NOVL.DL $6.10 Down +0.00 +0.00%
Novell, Inc. CAPS Rating: **
RL $98.19 Up +0.37 +0.37%
Ralph Lauren Corp CAPS Rating: ***
TZOO $11.42 Down -0.68 -5.61%
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