Growth Stocks Gone Crazy

Common wisdom says that growth stocks take a beating during bear markets. There's some truth to this, of course. Just ask David Gardner. But forsaking all high-growth stocks for fear of the bear is just plain silly.

Growers go crazy in every market
Don't take my word for it. Let's go to the scorecard. Using the mutual fund screening tool on Morningstar's website, I found 31 growth-oriented funds that are beating the S&P 500 so far this year. Fees for these load-free winners ran less than 1.5% annually. And the stock pickers at the helm had been on the job five years or more in every case.

Not surprisingly, the best of the best have pummeled the market so far this year. And that includes a top-performing Motley Fool Champion Funds selection, Meridian Growth (MERDX), which is up 5.4% during 2006 and more than 17% since joining the portfolio two years ago. Here's a list of its top 10 holdings as identified by Yahoo! Finance.

Company

YTD Return

United Rentals (NYSE: URI  )

36.73%

EGL (Nasdaq: EAGL  )

33.62%

Allied Waste (NYSE: AW  )

29.98%

Granite Construction (NYSE: GVA  )

26.62%

Laboratory Corp. (NYSE: LH  )

15.56%

American Tower (NYSE: AMT  )

14.83%

Affiliated Managers Group

8.27%

Republic Services

8.16%

T. Rowe Price

5.76%

DaVita

(1.86%)

Source: Yahoo! Finance. Returns as of 8/7/06.

Quality loves company
Examine the portfolio in detail, and what you'll find is that these stocks share many wonderful attributes. Consider EGL. Essentially a freight-forwarding business, it sports substantial insider ownership (22%) and a history of meaningful sales growth (17.6% annually over the past three years), and it is still run by the man who founded the company in 1984. In other words, it's a classic growth stock story. No wonder the shares have nearly doubled over the trailing 12 months.

Naturally, EGL isn't alone. Motley Fool Rule Breakers selection AkamaiTechnologies (Nasdaq: AKAM  ) has more than doubled over the past 52 weeks. Like EGL, it has experienced above-average sales growth, sports substantial insider ownership, and boasts a tenured management team.

Get growth on the cheap
Today's headlines scream for a retreat to value and safety in dividends. What nonsense. Don't get me wrong -- I love dividends as much as the next Fool. But the truth is that quality isn't confined to a single strategy or asset class.

And platitudes don't confer returns; research does. That's why the bear hasn't eaten the better growth funds. So, growth investors, take heart: Buy like crazy when others obsess over cereal box wisdom, as many on the Street are doing right now. Such boldness is what lights the path to multibagger returns.

Need some ideas for where to begin? Consider a free trial to our Rule Breakers service. David's portfolio of 46 rebel growers has rarely been cheaper than it is now. See for yourself with an all-access pass to the service. It's free for 30 days, and there's no obligation to buy. Click here to get started right away.

Fool contributor Tim Beyers only breaks the rules in his portfolio. Wimp. Tim owns shares of Akamai. Get the skinny on all of Tim's stock holdings by checking his Fool profile. Laboratory Corp. is a Motley Fool Stock Advisor pick. The Motley Fool has an ironclad disclosure policy.


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