5 More Undiscovered Growth Stocks

Finding great investments early can lead to spectacular returns -- even in art.

At least, that's how art investor John Morrissey does it. In a recent BusinessWeek interview, Morrissey said that his regular schedule of sleuthing for promising young artists led him to purchase a piece from Cecily Brown for $11,000 in 1998. Today, a similar piece sells for $968,000. That's a 64.5% average annual gain!

Running with the rebels
Rarely will stocks, or anything else, produce that sort of return. But 20% average annual gains are achievable if you're willing to risk betting on little-known growth stocks. That's what David Gardner did with a real-money portfolio that he ran from 1994 to 2003.

Surprised? Don't be. A close look at many of the market's 10 best stocks shows that, while they seemed expensive at the time, these were in fact the best value stocks available. That's why David and his team still seek to get in early on stocks that are reshaping, or creating, important industries. You can, too, with the help of our completely free-of-charge Motley Fool CAPS investor-intelligence database, which currently follows more than 4,000 stocks.

CAPS applies user input to rate stocks from one to five stars. Using CAPS, we'll once again search for stocks that haven't yet met the threshold for a star rating, have a minimum $250 million market cap, and are expected to grow their earnings by at least 20% annually over each of the next five years.

Let's have the list
Here are five growth stocks that need more coverage on CAPS.

Company

No. of CAPS Ratings

Bullish CAPS Ratings

5-Year Growth Est.

Valeant Pharma (NYSE: VRX  )

10

10

33.1%

TIM Participacoes (NYSE: TSU  )

9

7

29.0%

Darwin Underwriters (NYSE: DR  )

8

8

25.0%

Hellenic Telecom (NYSE: OTE  )

9

8

22.8%

Alumina (NYSE: AWC  )

8

6

20.0%

Source: Motley Fool CAPS, Yahoo! Finance

This isn't a list of recommendations; I'm simply offering these stocks as candidates for further research. But among these firms, Greek phone company Hellenic interests me most. Blame the All-Stars. Five of the nine players who have rated Hellenic are in the top 20% of the CAPS field, and every one of them says the stock will outperform. I'm guessing that they like the company's miniscule 0.66 PEG ratio, which suggests that its shares are trading well below fair value.

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 at the same time. Sign up for CAPS now; it's 100% free to participate.

I'll see you back here next week with five more undiscovered growth stocks.

Hungry for more great growth-stock opportunities? Join David Gardner and his team of future-focused Fools with a free 30-day trial to Motley Fool Rule Breakers.

Fool contributor Tim Beyers, ranked 1,375 out of more than 24,000 in CAPS, is a sucker for growth stocks and a regular contributor to Rule Breakers. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on growth stocks, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy is a Fool's greatest discovery.


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