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5 More Top Growth Stocks

Has growth suddenly become cheap? Standard & Poor's thinks so. After five years in which growth funds underperformed value funds by an average of 5.6% annually, S&P says the numbers finally favor fast movers.

Tech may offer the best example. S&P says that large-cap firms such as Oracle and Cisco (Nasdaq: CSCO  ) will grow earnings by an average of 21% next year. But these same stocks and others like them, which for years have sold at a premium, now sell for roughly 20 times their trailing earnings, S&P says.

No wonder many of the world's best investors say a growth-stock rally is underway. They understand that buying into garage-sale growth offers 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
But not all growth stocks will do. Our weekly hunt is for the next great multibagger, like large-screen display maker Daktronics (Nasdaq: DAKT  ) . 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 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:


No. of CAPS Ratings

Bullish CAPS Ratings

5-Year Growth Est.

Health Grades (Nasdaq: HGRD  )




Ultra Petroleum (AMEX: UPL  )




VASCO Data Sec. (Nasdaq: VDSI  )




Range Resources (NYSE: RRC  )




On Track Innov. (Nasdaq: OTIV  )




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. And this is a tough list to narrow down. For example, I've owned bank security provider VASCO in my CAPS portfolio for a long time, and with great success.

But Health Grades is also enticing. I'll let fellow Fool Tim Hanson, known here as TMFMmbop, explain the rationale:

"I love this industry, and I think there's room for both [National Research] and [Health Grades] to profit...The thesis is simply that health care spending will continue rising at record rates. There's no disputing that fact. Yet as more and more money comes from the government and from insurance companies, there's going to be much more interest in measuring the effectiveness of that spending. Moreover, with the Internet, consumers are going to be much more interested in seeing what the world thinks of their local doctors and hospitals. Look for [Health Grades] to grow fast or get acquired."

Intrigued? Due 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 at the same time. 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 who they are? Click here to get 30 days of free access to the service.

Fool contributor Tim Beyers, ranked 1,300 out of more than 19,300 in Motley Fool CAPS, is a sucker for growth stocks and a regular contributor to David's Motley Fool Rule Breakers service. Tim owns shares of Oracle. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. Daktronics is a former Stock Advisor recommendation. The Motley Fool's disclosure policy is your portfolio's competitive advantage.

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