3 More Undiscovered Growth Stocks

What's a discovery worth? Billions -- if, that is, it's the right discovery.

For millions of American men, who spend an estimated $1.5 billion a year on hair restoration products from Johnson & Johnson (NYSE: JNJ  ) , Merck (NYSE: MRK  ) , and others, curing baldness would be the right discovery.

Turns out there may be reason for hope. Researchers at the University of Pennsylvania have learned how to regenerate hair follicles by stimulating the genes within. To me, that sounds like weird science. Nevertheless, it could become a huge business for privately held Follica, which has licensed the technology.

Running with the rebels
Can you imagine the wealth that would be created if were Follica to succeed? David Gardner can. By discovering and then investing in little-known and frequently misunderstood high-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 at Rule Breakers still seek to get in early on businesses 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 4,400 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 three growth stocks that have yet to be discovered.

Company

No. of CAPS Ratings

Bullish CAPS Ratings

5-Year Growth Est.

KV Pharmaceutical (NYSE:KV-A)

7

6

23.0%

TDK (NYSE:TDK)

11

11

20.4%

Portugal Telecom (NYSE:PT)

9

9

16.7%

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. My favorite, however, is Portugal Telecom. I'll let Portuguese CAPS All-Star darkflame explain the thesis:

This stock has never been followed by Wall Street, until a fine day in February 2006 that a small Portuguese telecom company (Sonae.com) ... convinced some big Spanish banks to loan them 11 billion euros and tried to buy [Portugal Telecom,] offering a premium of about 17% ... nobody sold their shares. ... Then Sonae.com raised the price of the offer but [again] nobody sold. ... And now, PT itself is going to take 10% to 20% of their shares out of the market.

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.

Johnson & Johnson is an Income Investor pick.

Fool contributor Tim Beyers, who is ranked 5,787 out of more than 28,900 rated players 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. Tim's portfolio holdings can be found at his 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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