5 More Top Growth Stocks

Are you really a growth investor?

It's worth asking. Even though talk of a growth stock rally has spread to the pages of The Wall Street Journal, investing in fast movers can be a stomach churning-experience.

Yesterday offers a good example. Each major index was down more than 1% on speculation that Standard & Poor's would downgrade debt securities backed by subprime mortgages. High-growth tech stocks were meaninglessly dragged down with the rest.

Level 3 Communications (Nasdaq: LVLT  ) , for example, fell nearly 5%. Perhaps the skeptics are wondering whether the firm will ever produce positive free cash flow?

Perhaps, but the stock has been a market-beater over the past year. And now, well-known value investors are buying into this growth story, including Mason Hawkins of Longleaf Partners. Surprised? Don't be. All-star investors like Hawkins 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 Estimate

Smith Micro (NASDAQ:SMSI)

579

564

30.9%

Perficient (NASDAQ:PRFT)

262

257

25%

NATCO Group (NYSE:NTG)

114

114

20%

CDC (NASDAQ:CHINA)

574

555

20%

SRS Labs (NASDAQ:SRSL)

67

63

20%

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, refinery equipment provider NATCO interests me most.

Blame the All-Stars. Of the 114 who have rated the stock, 73 are among the top 20% of the more than 60,000 participants in the CAPS community. What do they know that the others don't? Here's how All-Star Warrior777 explains the thesis:

Insider ownership [is] 24%. Insiders have been consistently adding shares over the last two months. Strong cash flow. No debt.

Intrigued? Do your own due diligence, then check in with thousands of other investors at CAPS. 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.

Tim Beyers, who is ranked 2,886 out of more than 50,000 participants in CAPS, is a regular contributor to Fool.com and Rule Breakers. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. Find Tim's portfolio holdings in his profile. Learn more about growth investing in his blog. The Motley Fool's disclosure policy is your portfolio's competitive advantage.


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