Friday'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:

  1. Hysterical laughter.
  2. Sudden nausea.

Feel sorry for them, Fool.

How many times did biotechCelgene touch a new 52-week high on its way to becoming one of the 10 best stocks of the past decade? Too many to count, of course. (See for yourself.)

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 Motley Fool 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 those months ago.

Don't do as I did. Never assume that 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 almost 75,000 pro and amateur stock pickers in our Motley Fool CAPS community, we'll seek to find those still climbing.

Our candidates will be found daily in the 52-week high lists at The Wall Street Journal. But few high-fliers 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 which earn at least three of five stars from our CAPS contingent.

But that screen won't work today. There aren't enough high-rated stocks to fit our needs. Don't worry too much about that, though. Apple has spent the bulk of its life in CAPS as a two-star stock, and it's been a 20-bagger since 2002.

With that, here are today's five rocket stocks for your consideration:

Company

Closing Price

CAPS Rating (5 max)

5-Year Growth Estimate

52-Week Range

I-many (NASDAQ:IMNY)

$3.22

**

30%

$1.61-$3.22

Astronics (NASDAQ:ATRO)

$48.00

*****

25%

$14.56-$48.00

Ventana Medical Systems (NASDAQ:VMSI)

$90.08

***

25%

$39.14-$90.25

Abaxis (NASDAQ:ABAX)

$33.50

****

20%

$16.94-$33.99

VeriSign (NASDAQ:VRSN)

$36.06

***

15.4%

$22.77-$36.82

Sources: The Wall Street Journal, Yahoo! Finance, Motley Fool CAPS, as of 11/16/07.

Our mostly small-cap list features some promising though speculative stocks. Yet these tiny titans can create astounding returns if bought before they get discovered. Witness contract management software specialist I-many. A popular choice among micro-cap fund managers, this stock has risen roughly 72% over the past year, easily besting the S&P 500's 2% return during the same period.

Up, up, and away!
But today's favorite is far more boring. Astronics is a pedestrian maker of lighting fixtures, among other things, for aircraft. Yet management's performance has been anything but ho-hum:

Metrics

Trailing 12 Months

2006

2005

2004

Return on capital

22.3%

12.9%

7.4%

(1.5%)

Return on equity

36.1%

20.2%

9.3%

(3.2%)

Source: Capital IQ, a division of Standard & Poor's.

I also like that Astronics isn't overly dependent on commercial airlines such as US Airways (NYSE: LCC  ) . According to this presentation (downloads a PDF file), Astronics generates roughly a third of its business from the military and manufacturers of business jets, such as Embraer (NYSE: ERJ  ) .

Business jets, in particular, are taking off in record numbers and could account for a $158 billion market within a decade. But for investor MMWWMM111, the thesis for Astronics comes back to the numbers. Quoting from last month's pitch:

Recent acquisition of Airborne Lighting from General Dynamics, expansion of facilities. ... Low PEG, [return on equity] more than double the industry average, [quarterly] earnings growth 129.30%. An attractive company with much potential for growth and new contracts.

Intriguing, no? I'll say. Between the numbers and the enthusiasm our best investors have for Astronics (57 out of 58 All-Star CAPS players rate it an "outperform"), I'm compelled to give the stock a place in my CAPS portfolio.

What about you? What would you do? Let us know by signing up for CAPS today. It's 100% free to participate.

See you back here tomorrow for more rocket stocks.


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