5 More Undiscovered Growth Stocks

With the work of so many great investors available to the curious Fool, it's hard to choose a favorite. But Hewitt Heiserman Jr., author of the excellent book It's Earnings That Count, ranks pretty high on my list. Why? Heiserman is a cautiously greedy stock picker who believes it is possible to earn huge returns without taking unnecessary risks.

He explained the strategy in this 2004 interview. As you'll see, it's comprehensive. But that's not how Heiserman hooked me. A simple truth he expressed at the time is what did it. Quoting: "Low institutional ownership leaves room for mutual funds and others to come in and discover the firm and push the share price higher. On the other hand, if 98% of the stock is already owned by institutions, then the most likely decision they'll make next is to sell, and that will create downward pressure on the shares." Makes sense to me.

Running with the rebels
And to David Gardner. He earned 20% average annual gains over nine years by betting on little-known and frequently misunderstood growth stocks.

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 contains information on more than 4,100 stocks.

CAPS applies user input to rate stocks from one to five stars. So, using CAPS, we're once again going to search for stocks that haven't yet met the threshold for a star rating and are expected to grow their earnings by at least 20% annually over each of the next five years.

Let's have the list
Now, with that preamble behind us, here are five growth stocks that have yet to be discovered by most of our CAPS community.

Company

No. of CAPS Ratings

Bullish CAPS Ratings

5-Year Growth Est.

Metabolix (Nasdaq: MBLX  )

2

1

35.0%

Oscient (Nasdaq: OSCI  )

2

2

30.0%

PDF Solutions (Nasdaq: PDFS  )

7

6

27.5%

Salix (Nasdaq: SLXP  )

9

7

27.5%

Hiland Holdings (Nasdaq: HPGP  )

8

9

27.0%

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. But it's drug maker Oscient that interests me most. Blame CAPS All-Star pennysplants, whose picks have placed her in the top 1% of those in the database. She writes:

"Note how [the] stock popped in early Dec. '06 when Pfizer's (NYSE: PFE  ) cholesterol drug development study was halted. Speculation is that Pfizer will need to feed [its] future pipeline with acquisitions. Oscient acquired [the] rights to [the] cholesterol drug Antara from Reliant Pharmaceuticals for $82 million in August. The drug is not only approved to lower bad cholesterol, but [also] to raise good cholesterol when used along with a healthy diet. Pfizer already has a working relationship with Oscient, marketing an antibiotic for pneumonia in Mexico."

Intrigued? Do your own due diligence and then check in with thousands of other investors at CAPS. And, 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; it's 100% free to participate.

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

How great is growth? Four of the dozens of stocks in the market-beating Motley Fool Rule Breakers portfolio have more than doubled 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, who is ranked 1,504 out of more than 24,400 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. Pfizer is a Motley Fool Inside Value choice. The Motley Fool's disclosure policy is a Fool's greatest discovery.


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