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 Cornerstone Growth.

Manager Neil Hennessy rarely needs a tailwind. Indeed, the hamsters and spreadsheets behind his quantitative process have crushed the S&P 500 by nearly seven percentage points since the fund opened for business in 1996.

Hennessy's clients haven't been as fortunate in 2007. According to Morningstar, Cornerstone Growth, which won't invest in firms that charge more than $1.50 for a dollar's worth of revenue, is losing to the index by just over one-half of a percentage point.

Don't expect Hennessy to care. He counsels investors in Cornerstone Growth to be prepared to hold fast for at least five years. Good idea:

  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 estimate

VASCO Data Security (NASDAQ:VDSI)

377

368

35.0%

Volcom (NASDAQ:VLCM)

1,297

1,252

25.0%

Stratasys (NASDAQ:SSYS)

80

76

23.5%

AeroVironment (NASDAQ:AVAV)

114

110

22.5%

NN Inc. (NASDAQ:NNBR)

29

29

21.1%

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. VASCO Data Security, which I first profiled here, still interests me. It interests BusinessWeek, too -- the magazine named the digital bank sentry to its list of the top 100 "hot growth stocks."

Nevertheless, my favorite from this week's list is NN, which trades for just nine times its trailing earnings and sports a market-beating 2.60% dividend yield. Better still, 12 of the 29 investors who have rated NN are All-Stars, including rd80, who writes:

... I believe the price is a little depressed because the company is behind schedule with some international expansions. If they don't run into more major problems, the overseas operations should start adding more to the bottom line within a quarter or two. And the Enterprise Value to EBITDA ratio could make it interesting as a buyout candidate.

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.

Volcom is a Hidden Gems pick. Get 30 days of free access to the entire portfolio, which is up on the S&P 500 by more than 34%. There's no obligation to subscribe.

Fool contributor Tim Beyers, who is ranked 7,257 out of more than 30,000 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 article 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 your portfolio's competitive advantage.


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