Tuesday's Top 5 Rocket Stocks

Ask cheapskate value investors to buy a stock that's achieved a new 52-week high, and you'll get one of two responses:

  • Hysterical laughter.
  • Sudden nausea.

Feel sorry for them, Fool.

How many times has Apple touched a 52-week high on its way to yesterday's close of $169.96? Too many to count, of course. Those who panicked at the thought of buying at the top have missed out on a 20-bagger since 2002.

Let that be a lesson. Rocket stocks -- that is, high-growth stocks that are also realizing heavy price appreciation -- are sometimes worth buying.

Rocket stocks, not rocket science
And sometimes they're worth buying in bulk. Think of Baidu.com. My buddy Rick Munarriz recommended China's top search engine to our Rule Breakers subscribers at $83.37 in October of last year.

I thought he was nuts. I mean it. The stock was both expensive and on a tear. So, I argued against buying it in a January duel here at Fool.com. Now Baidu is a four-bagger. How I wish I had listened to what Rick was telling me all those months ago.

Don't do as I did. Never assume an expensive stock is too expensive. What looks like a cliff could really be base camp on a climb toward the summit of Everest. Each day in this column, with the help of the 74,000 pro and amateur stock pickers in our Motley Fool CAPS community, we'll seek to find those still climbing.

You'll find our candidates daily in the 52-week-high lists at The Wall Street Journal. But few highfliers will make the cut; we're looking for stocks expected to boost net income by at least 15% annually over the next five years and that earn at least three of five stars from our CAPS contingent.

Here is today's top five for your consideration.

Company

Closing Price

CAPS Rating (5 Max)

5-Year Growth Estimate

52-Week Range

CEVA (NASDAQ:CEVA)

$11.00

****

37.5%

$5.90-$11.25

Peet's Coffee & Tea (NASDAQ:PEET)

$29.52

***

18.5%

$22.98-$29.83

MedcoHealth Solutions (NYSE:MHS)

$100.16

*****

17.0%

$47.08-$100.21

Net 1 UEPS (NASDAQ:UEPS)

$32.69

*****

16.5%

$21.25-$33.05

Millipore (NYSE:MIL)

$82.43

***

15.3%

$65.29-$82.51

Sources: The Wall Street Journal, Yahoo! Finance, Motley Fool CAPS.

Our mostly small-cap list features some promising though speculative stocks. Yet these tiny titans can create astounding returns if you buy them before they get discovered. Witness wireless specialist CEVA, which is up nearly 70% over the past year, easily besting the S&P 500's 7% return over the same period.

Of course, small caps don't always win. Peet's is a good example. I'm a fan of this coffee connoisseur, which is more like Green Mountain Coffee Roasters than like Starbucks (Nasdaq: SBUX  ) in that it sells beans rather than drinks. Trouble is, even when you factor in its superior expected growth, the stock commands a stratospheric 2.36 PEG ratio, well above the industry average.

Do you UEPS?
What's my favorite from today's list? Electronic-payments processor Net 1 UEPS, which is one of David Gardner's many market-beating picks for Motley Fool Rule Breakers. Here's a snapshot view of his thesis: "South African company Net 1 provides smart cards as part of universal electronic payment systems. The cards are used for offline commerce among businesses and individuals with little or no access to conventional banking." (Emphasis added.)

Would you believe that as much as 60% of the country faces that problem? Believe it. I've been there. That's one of the reasons I so enjoy this company. Not only is it in a profitable business, but it's also offering affordable help to people who desperately need it.

Others see an explosive growth business in the making. Favorite Fool Ganndalf explained his thesis last February:

Excellent revenue and earnings growth over the last three years ... UEPS is covered by only [four] analysts. Potential market is very large in this emerging market. Valuation seems to be quite reasonable judging by analyst estimates and recent price. [Five analysts now track this company; PEG is currently 1.65 -- Eds.]

And don't forget returns on capital. They've remained above 24% every year since 2004, putting Net 1 UEPS in the same league as industry heavyweights like MasterCard (NYSE: MA  ) .

Intrigued? Do your own due diligence, and 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. Get started now; the service is 100% free.

See you back here tomorrow for more rocket stocks.


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