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America's Next Top Growth Stock

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Growth stocks are the beauties of the stock world, plain and simple. They're exciting, they have good stories, and they can make you a lot of money. Apple's (Nasdaq: AAPL  ) stock may have taken a hit with the rest of the market, but its iPod-fueled profit growth has left investors with huge gains over the past five years.

But for all their beauty, growth stocks are also the prima donnas of the market. They can be erratic, they don't always live up to their billing, and they tend to attract a shareholder base that's ready and willing to run at the first signs of a slowdown. For those reasons, caution is certainly in order when you enter the world of growth investing.

Fortunately, The Motley Fool's CAPS service brings us the collective intelligence of a community of more than 120,000 investors, and it’s a great resource for separating the Jessica Albas from the Jabba the Hutts. Each of the stocks competing for this week's top spot has a market cap of at least $100 million and grew its net profit by at least 20% over the past year. So let's go ahead and meet our contestants.

There are a lot of choices for consumers and businesses when it comes to data security, but with its Norton suite of products, Symantec (Nasdaq: SYMC  ) remains one of the granddaddies of the data-security market. Today, Symantec addresses not only security, but also the rapidly growing area of data storage. For the third quarter, 7% year-over-year revenue growth and improved margins led to non-GAAP earnings-per-share growth of 28%.

Steel Dynamics
Steel Dynamics (Nasdaq: STLD  ) is one of the largest steel producers and scrap processors in the U.S. The huge global demand for steel helped propel Steel Dynamics' results -- and stock price -- over the past few years. More recently, the stock has come back hard on economic concerns, and the third quarter showed some signs of slowing. But earnings per share over the last 12 months are up an impressive 61% from the prior year.

Range Resources
With a focus on oil and gas exploration -- especially gas -- Range Resources (NYSE: RRC  ) has been on both the profitable and the painful end of the wild ride in energy prices. By expanding production in an environment of rising energy prices, Range saw its stock skyrocket along with its profits. Energy prices have fallen well off their highs, but Range still managed to grow production and net income in the third quarter. On an adjusted basis, net income for the quarter was up 24% from the prior year.

Occidental Petroleum
Sticking with the oil and gas theme, Occidental (NYSE: OXY  ) is an oil and gas company with operations around the world. The company also has a subsidiary that manufactures and markets chemicals and vinyls such as chlorine, caustic soda, and PVC. As with Range, the fate of oil and gas prices has had a huge impact on the company's stock, but for now at least, results continue to be impressive. For the recently announced third quarter, net income jumped 72% over the prior year on higher prices, higher production, and lower exploration costs.

Software giant CA (NYSE: CA  ) hopes that it has not only left behind its former name, "Computer Associates," but also the controversy it faced while operating under that moniker. Former CEO Sanjay Kumar is now gone, and new CEO John Swainson hopes to continue getting the company back on track and able to measure up with formidable competitors like IBM (NYSE: IBM  ) and Symantec. Based on the most recent quarter's 28% year-over-year non-GAAP earnings-per-share growth, it looks like things may be moving in the right direction.

The envelope, please ...
Symantec and CA may be showing rising results, but CAPS members are far from won over on either stock. Both stocks are rated just two stars out of five, and the opinions of many CAPS players range from lukewarm to downright hostile. Range Resources hasn't been the subject of quite so much ire on CAPS, but its three-star rating does keep it off the top of our list.

Steel Dynamics, on the other hand, makes our short list with its four-star rating. Though the global demand for steel is cooling, CAPS members think that the company's scrap operations, the stock's low valuation, and the healthy dividend make the stock a worthwhile choice.

But the four stars for Steel Dynamics couldn't top the perfect five stars that CAPS members have given Occidental Petroleum. Of the nearly 1,200 CAPS members that have rated Occidental, 1,150 of them have rated it an outperformer. CAPS members have been drawn to Occidental's valuation and dividend, as well as the longer-term prospects for oil. Back at the end of September, DemonDoug, one of CAPS' top players, chimed in with:

[Occidental is a] solid oil company, beaten up by the rest of the market (16%!!!), didn't actually get to it's 52 week low but got close, will continue to be making money in the near and long term future.

Now go vote!
Do you think Occidental has what it takes to be America's next top growth stock? Head over to CAPS and let the rest of the community know what you think.

More CAPS Foolishness:

Symantec is a Motley Fool Inside Value recommendation. Apple is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. The Fool’s disclosure policy would surely win America's Next Top Disclosure Policy, but for some reason there's no such contest.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 02, 2008, at 2:01 AM, HangtownCA wrote:

    Thanks for the article.

    I see you mentioned "non-GAAP" earnings-per-share a few times - can you explain what exactly that means? Do we know what numbers are the companies including/excluing in their earnings per share number that makes it non-GAAP? Is one company's definition of non-GAAP earnings-per-share the same as another?

  • Report this Comment On November 03, 2008, at 8:40 PM, TMFKopp wrote:

    GAAP, or "Generally Accepted Accounting Principles," is the standard for financial reporting for US-listed companies. So any note saying that something is non-GAAP means that there was some calculation used that was outside of the generally used standards.

    This can get tricky because (to answer your last question) there is no universal standard for non-GAAP reporting. For more on the idea of GAAP, check out this article --

    For the purposes of the year-over-year profit growth, I used non-GAAP numbers to adjust for non-cash charges that occurred in the prior year quarter for a couple of these companies, including some asset impairment charges at SYMC. In both cases the net income growth using non-GAAP numbers was lower than under GAAP standards. I also think that the non-GAAP net income growth in both cases better reflected the actual underlying growth of the companies.

  • Report this Comment On November 04, 2008, at 10:29 AM, CAStockFollower wrote:


    When it comes to CA you need to review the numbers. You mentioned a 28% earnings gain - if the revenue didn't increase 28% then the gain comes from cost cutting. This company has been throwing all excess baggage (expenses) over the rail trying to keep their ship afloat. Unfortunately, they've thrown their life preservers overboard also. The life rafts were sold long ago. The company looks like it's praying for a buy-out.

  • Report this Comment On November 04, 2008, at 2:07 PM, TMFKopp wrote:


    Thanks for the comment! In fact, as I mentioned in the article, CA is rated just two stars (out of five) by CAPS members. So apparently there are a lot of CAPS members who share your same opinion.

    It sounds like you have some strong opinions on CA, so I encourage you to visit the CA page on CAPS and share your thoughts --

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