America's Next Top Growth Stock

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.

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 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 160,000 investors. 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 earnings per share by an average of 15% or more per year over the past three years. Let's meet our contestants:

Source: Yahoo! Finance, Capital IQ, a Standard and Poor's company, and CAPS as of May 5.

Growth without good looks
Research In Motion has put up scorching historical growth. Analysts expect that it could deliver growth of 18% per year over the next five years, and the stock is trading at less than 16 times trailing earnings. So why does the CAPS community still consider this a two-star stock?

To some extent, it seems that RIM just can't win. When it was at the peak of its popularity, dominating the smartphone market, investors thought the stock was too expensive. Now, the stock carries a pretty reasonable valuation, but investors are concerned about the future of the company, thanks to Apple's (Nasdaq: AAPL) takeover of the smartphone market.

If you ask me, I think RIM has a pretty good thing in the business market, which may be tougher for the iPhone to grab. Rather than trying to outdo Apple, RIM should focus on that strength and use its cash flow to start kicking a dividend out to its investors.

Speaking of tech companies that ought to pay a dividend, I think eBay is way overdue. The company produces a ton of free cash flow and has a debt-free balance sheet with $4.5 billion in cash sitting around. The company's margins have been healthy, but top-line growth just isn't what it used to be.

With growth on the wane and cash piling up, I see the risk of the company announcing a big "transformative" acquisition if eBay doesn't start paying its shareholders one way or another. All too often, such massive tie-ups just end up as a big bungle that destroys shareholder value.

The CAPS community has given Chipotle one more star than eBay and RIM, which puts it at a middling three stars. Despite the low rating, CAPS members -- bulls and bears alike -- seem to really like the business. Unfortunately, the stock's current valuation is just a little too picante (sorry, I had to do it) for many members' taste buds.

Strutting their stuff
While the stocks above haven't been able to sufficiently inspire CAPS members, McDonald's has.

Chipotle's former parent may not have nearly the growth that the burrito slinger does, but the company does have an extremely long history of growth and profitability. And while Mickey D's carries a massive $76 billion market cap, it's still finding ways to grow today.

While tapping into the torrid growth in developing countries remains a mere pipe dream for many companies, McDonald's is already succeeding there. In 2009, the company's Asia/Pacific, Middle East, and Africa division accounted for $1 billion in operating income -- up 23% year over year on a constant currency basis. The growth just keeps going; in the first quarter, that same segment showed a 5.7% gain in same-store sales.

But geography isn't the only place where McDonald's is finding ways to grow. As a bit of a coffee snob myself, I find it hard to buy the concern that McDonald's McCafe offerings will be a real threat to Starbucks (Nasdaq: SBUX). But while Starbucks' core customer base is unlikely to be wooed by McCafe drinks, McDonald's will likely pick up customers on the margin -- that is, folks who are just looking for a decent cup of coffee that doesn't come from a scorched 7-11 pot. At the same time, McCafe drinks give the company a great opportunity to upsell pricier espresso drinks to current customers.

But as good as the McDonald's story is, the stock was one star short of topping this week's top growth stock: Fluor.

After putting up some impressive growth over the past three years, this global engineering firm has hit the skids more recently, as the recessionary construction slowdown caught up with the company.

But given its historical strength in the oil and gas and infrastructure markets, it seems unlikely that Fluor will be kept down for long. Oil prices have been on the rise again, which will likely inspire more industry activity around the world. Infrastructure, meanwhile, has been a major focus of many of the world's fastest-growing economies.

More than 1,300 CAPS members have given Fluor a thumbs-up, including CAPS All-Star wheckster, who rated the stock an outperformer late last year, saying:

Fluor is a very solid company, with excellent financials and very strong management. Proof? It managed to remain very strong during the recession. ... as the speculative rally starts fading, investors will look for strong, financially robust companies with a strong growing outlook that have not been overbought during the '09 rally. FLUOR fits the bill perfectly. This one is going to be a shining star in 2010.

Now go vote!
Do you think that Fluor 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.

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