5 More Undiscovered Growth Stocks

Can't. For an investor, there's no better word.

Consider the story of Toyota (NYSE: TM  ) . Even though Ford (NYSE: F  ) was rolling out -- wait for it -- 200 times more vehicles per day in 1950, Toyota's adoption of new practices -- such as acquiring parts only at the point of assembly, or what is now known as "just-in-time manufacturing" -- helped it to steadily close the gap.

And time would prove to be a friend. By 1989, Toyota was selling more than 1 million cars a year in the United States. The next year, Fortune named the company "the best car maker in the world," according to the book 50 Companies That Changed the World by author Howard Rothman. Talk about a reversal of fortune.

Running with the rebels
But Toyota's story isn't all that unusual. Firms that zig when others zag are often ignored -- that is, until they no longer can be. That's how Toyota snuck up on Ford, General Motors (NYSE: GM  ) , and Chrysler in the '80s and made its investors rich in the process.

Business hasn't changed much in the two-and-a-half decades since. Today's best growth stocks are still to be discovered. And those who dare to invest in what others ignore can still enjoy market-crushing gains.

David Gardner, who captains the good pirate ship Rule Breakers, offers living proof. By discovering and then investing in little-known and frequently misunderstood growth stocks, he produced nine years of 20% average annual returns. History told him that these were 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 4,300 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, that have a minimum $250 million market cap, and that are expected to grow their earnings by at least 15% 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.

Company

No. of CAPS Ratings

Bullish CAPS Ratings

5-Year Growth Est.

Cubic Corp. (AMEX:CUB)

7

3

16.6%

Capital Senior Living (NYSE:CSU)

4

3

16.3%

Berkshire Hills Bancorp (NASDAQ:BHLB)

3

1

15.0%

QC Holdings (NASDAQ:QCCO)

8

4

15.0%

Texas Capital BancShares

9

9

15.0%

Sources: 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. My favorite, however, is regional banker Texas Capital, which has universal support from the nine amateur and professional investors that have rated the stock in CAPS.

They look smart today. Texas Capital yesterday reported $0.29 in first-quarter net income, easily besting Street estimates. The stock was up 8.5% on the news and is still rising today.

Intrigued? Due 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 what they are? Click here to get 30 days of free access to the service.

Fool contributor Tim Beyers, who is ranked 1,342 out of more than 27,200 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 an investor's greatest discovery.


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