5 More Top Growth Stocks

Now that talk of a growth stock rally has spread to the pages of The Wall Street Journal, it's time to check in on some of the funds that ought to be benefiting from the shift. This week, our subject is T. Rowe Price Growth Stock (PRGFX).

A championship-caliber fund, Growth Stock is the vehicle that allowed legendary stock picker Thomas Rowe Price to demonstrate the long-term power of high-growth investing. Similarly, Bob Smith's nine-year tenure has produced market-crushing returns.

And the record remains intact in 2007. Morningstar shows the fund, up 6% so far, up one percentage point on its category peers and 1.1 points on the S&P 500 year-to-date.

That would give Smith plenty of momentum heading into the slower summer months -- if, that is, he were still running the fund. Alas, he's been tapped to lead the firm's international fund, which has trailed the benchmark MSCI EAFE index by more than three percentage points annually over the past five years.

Expect Smith to close the gap by injecting a healthy dose of cheap growth. He and all-star stock pickers like him know that:

  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
Of course, 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 our Motley Fool CAPS investor intelligence database.

Specifically, we're looking for stocks that have earned a five-star rating in CAPS and which are expected to grow their earnings by at least 20% annually over the next five years. 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

5-Year Growth Est.

Atheros Communications
(NASDAQ:ATHR)

952

939

30.0%

Obagi Medical Products
(NASDAQ:OMPI)

25

25

25.0%

Pericom Semiconductor
(NASDAQ:PSEM)

43

42

25.0%

Metretek Tech.
(AMEX:MEK)

66

63

25.0%

Vnus Medical
(NASDAQ:VNUS)

23

22

25.0%

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 of these five, it's biotech Obagi Medical Products that interests me most.

I'll admit that's unusual. Biotech isn't my specialty. But I don't really see Obagi as a classic biotech. It's more like a cosmetics maker -- but on molecular steroids. As the website says, Obagi products transform skin "at the cellular level."

That sounds to me like something free-spending women will ante up for. And they are. Obagi's revenue growth has accelerated from 14% in 2004 to 20% last year. Still higher projections are on tap for 2007 and beyond.

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; the service is 100% free.

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

Fool contributor Tim Beyers, who is ranked 4,098 out of more than 28,500 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. T. Rowe Price Growth Stock is a Champion Funds recommendation. Atheros Communications is a Hidden Gems selection. The Motley Fool's disclosure policy is your portfolio's competitive advantage.


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