Color to the Numbers: The Top Bargain Growth Stocks

Thanks to the Internet and sites such as Yahoo! and MSN Money, investors have more tools than ever to search for stock ideas by running screens of stock databases. But screens often return huge numbers of stocks, many of which need to be weeded out because the numbers don't tell the whole story. For instance, massive growth at one company may have been due to one-time tax adjustments and not core operations. Or maybe the screen didn't include the latest announcement that a dividend was canceled.

So just like the color-by-numbers books that kids doodle on, the picture for stocks pulled from any screen is not clear until the appropriate color is added to the page. In this edition of "Color to the Numbers," we'll enlist Motley Fool CAPS to take a Foolish look at a screen for bargain growth stocks, to see which ones may be worth investigating further and which should be cast aside.

Better a screen than a window
The community of knowledgeable investors who rate stocks in CAPS can help us in our search for bargain growth stocks. By pulling up a quote on a particular stock in CAPS, investors can see at a glance how the collective community rates a company today. Additionally, investors can focus in on how the very best All-Star stock pickers -- CAPS players with a ranking above 80 -- rate a given stock. You'll even find pitch commentary and blogs that give details behind bull and bear opinions. This gives investors a lot more qualitative analysis than just numbers and tables can provide.

So let's take a look at our bargain growth screen for today and a handful of the top stock candidates it returned. To run this screen, we'll use the following criteria:

• Price-to-earnings-to growth (PEG) ratio of less than 0.75.
• Projected earnings growth for the next five years in excess of 25%.
• Annual revenue of at least $100 million.
• Free cash flow of at least $30 million.

This should give us the cream of the crop in terms of stocks with powerful earnings growth still trading at a decent price. In addition, the minimums on annual revenue and cash flow will help us pick companies that have already hit stride, and not just newbies with little operating history. Of course, there may be very good reasons why these companies trade at low multiples. (Hint: This is where CAPS can really help!)

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.

The last time we ran our bargain growth screen in May, a number of companies related to mining and oil-and-gas production bubbled to the top. It's no different today, as global demand for basic commodities continues at a feverish pace. Just about every company connected somewhere in the supply chain for oil and gas is expected to experience dramatic growth in the next several years, whether you supply equipment and services, as National Oilwell Varco does, or perform the actual drilling and productions, as Atwood Oceanics does. And while CAPS investors overwhelmingly favor this sector, at least one Fool has questioned whether growth estimates of 68.5% for Atwood are realistic in the long run.

Another "pick and shovel" company that popped up on our bargain growth screen today is semiconductor-wafer producer MEMC Electronic Materials. The company was the first merchant manufacturer to supply high-quality silicon wafers to the semiconductor industry in 1959. But even after years of exceptional growth, the company is still expected to grow more than 30% in the future. While a few CAPS investors express concerns about semiconductor cycles and MEMC's exposure to them, more than 95% of investors are bullish on the company.

One bargain growth stock earning raspberries from the CAPS community is Internet service provider Earthlink. Almost half of the 41 CAPS All-Stars rating the company have panned the firm, in betting that the company will underperform the S&P going forward as revenues decline and net losses continue to mount. However, the company has a new CEO, Rolla Huff, who is determined to turn the sinking ship around. Known as a shrewd leader, Huff plays no favorites and has hinted that some costly new ventures may be reformed, curtailed or completely axed -- namely, the Helio joint venture with SK Telecom (NYSE:SKM) and the numerous municipal Wi-Fi projects the company is working on.

Let 60,000 investors be the judge
The collective wisdom of a huge pool of investors can quickly add color to a whitewashed page of numbers. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own research.

Want to see your favorite screen results run through the wringer in the CAPS community? It's free to tap the knowledge base and even give your own opinion in Motley Fool CAPS.

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Fool contributor Dave Mock does his best to color within the lines, but reserves his right to artistic expression. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy doesn't see color or the wart on your nose.