5 Stocks on Lynch’s Radar

Peter Lynch is renowned for overseeing Fidelity's prestigious Magellan Fund from 1977 to 1990. Lynch grew his assets from a paltry $18 million to more than $10 billion by the time he retired. Astoundingly, he held more than 1,000 individual stock positions and his fund averaged an annual 29.2% return over the course of his management.

Lynch is equally well-known for telling each person to "invest in what you know." In his acclaimed book One Up on Wall Street, he laid out the blueprint for investing in various types of stocks. However, he did have a very distinct preference of his own. With regard to fast-growing stocks, Lynch states that "these are among my favorite investments: small, aggressive new enterprises that grow at 20%-25% a year." While growth stocks can be risky, Lynch says that "one or two of these can make a career."

In order to identify Lynch’s growth stocks, we used a stock screener to find companies with:

1. Earnings growth greater than 10% over the past three years.
2. Revenue growth greater than 20% over the past three years.
3. Return on equity greater than 15%.
4. Inside ownership of at least 15%.

You can build a similar screen using the Motley Fool CAPS screener. Lastly, we enlisted the intelligence of our 145,000-member-strong CAPS community by selecting only stocks that have a minimum of three stars (out of five). These stocks certainly have the potential to be market-beating fast growers, so feel free to dig a bit deeper on your own.  

Company	Average Earnings Growth (3 years)	Return on Equity	CAPS Rating (out of 5)
Pegasystems (Nasdaq: PEGA  )	262.7%	15.2%	***
Cal-Maine Foods (Nasdaq: CALM  )	238.5%	21.0%	*****
China Sky One Medical (Nasdaq: CSKI  )	152.9%	34.3%	****
Diana Shipping (NYSE: DSX  )	38.7%	16.8%	*****
Quality Systems (Nasdaq: QSII  )	17.9%	30.2%	*****

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

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