5 More Top Growth Stocks

Bill Miller will tell you: 2006 wasn't the year for growth stocks. Thanks to laggards such as Amazon.com (Nasdaq: AMZN  ) , eBay, and even Google, Miller's 15-year winning streak against the S&P 500 is now over.

I know what you're thinking. If Miller, a genius among geniuses, is unable to beat the market with growth stocks, what chance do you have? A very good one, I think. Why? Three reasons come to mind.

First, Miller didn't suddenly turn dumb. His thesis for investing in the titans of the digital world remains intact. Second, research strongly suggests that a growth-stock rally is underway. And third, Miller is one of many who believe there's money to be made in fast movers. These superstar stock-pickers know that growth as a strategy has three important advantages:

  1. Businesses that make investors billions always begin as growth stocks.
  2. The best of them feature massive and identifiable competitive advantages.
  3. Growth as a strategy has the capacity to deliver 20% or greater annual returns for decades at a time.

How we do it
Not all growth stocks will do. Our weekly hunt is for the next great multibagger. But unlike David Gardner and his team at Motley Fool Rule Breakers, who scour everything from financial statements to trade magazines to clinical reports in their research, we're going to rely on the Motley Fool CAPS community intelligence database.

Specifically, we're looking for stocks that are expected to grow earnings by an average of at least 20% annually over the next five years, and which have earned a five-star rating in CAPS. Five-star stocks are those that the community, on the whole, believes will outperform the S&P 500.

Let's have the list
Now, with that preamble behind us, here are five more top growth stocks:

Company

No. of CAPS ratings

Bullish CAPS ratings

Five-year growth est.

iGATE (Nasdaq: IGTE  )

24

23

30.0%

RELM Wireless (AMEX: RWC  )

29

29

27.5%

Ceragon Networks (Nasdaq: CRNT  )

38

38

25.0%

Corillian (Nasdaq: CORI  )

35

35

20.0%

Cybex Int'l (Nasdaq: CYBI  )

35

33

20.0%

Source: 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. Among the list, exercise-equipment maker Cybex interests me most for its low PEG ratio and rapidly improving returns on capital.

For others in CAPS, such as All-Star player downwithpumpers, Cybex's endorsement by Roth Capital, which has proven to be one of Wall Street's best, is enough. His thesis? Cybex's stock was down from where Roth picked it. But Cybex has yet to recover, down another 8% from downwithpumpers' buy-in price.

When will the turnabout come? Possibly soon, if investors focus on the fundamentals. Consider free cash flow (FCF). Capital IQ says that Cybex produced $6 million in FCF over the trailing 12 months. That's double its 2005 production, and more than triple its 2004 rate.

Intrigued? Do your own due diligence, then check in with thousands of other investors at CAPS. If you'd like, add your own commentary. You'll be helping your fellow Fools and testing your ideas simultaneously. Click here to get started now; the service is 100% free.

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

How great is growth? Three of the dozens of stocks in the market-beating Motley Fool Rule Breakers portfolio have quadrupled in two years. Care to find out what they are? Click here to get 30 days of free access to the service.

Fool contributor Tim Beyers, ranked 1,381 out of more than 18,700 in Motley Fool CAPS, is a sucker for growth stocks and a regular contributor to David Gardner's Rule Breakers service. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. Amazon and eBay are Stock Advisor selections. The Motley Fool's disclosure policy is your portfolio's competitive advantage.


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