Monday's Top 5 Rocket Stocks

Ask a cheapskate value investor 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.

Pity them, Fool.

How many times did retailer American Eagle Outfitters (NYSE: AEO  ) touch a new 52-week high on its way to becoming one of the ten 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 also realize 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, fellow Fool 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 on Fool.com. Now Baidu is nearing a four-bagger. How I wish I had listened to what Rick was saying 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 to the summit of Mt. 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 out the ones that are 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 that earn at least three of five stars from our CAPS contingent.

Here are today's top five for your consideration:

Company

Closing
Price

CAPS
Rating

5-Year
Growth
Estimate

52-Week
Range

HMS Holdings (NASDAQ:HMSY)

$32.31

****

35.0%

$12.72-$33.54

TransDigm Int'l (NYSE:TDG)

$48.50

*****

28.5%

$23.75-$49.90

InterContinentalExchange (NYSE:ICE)

$180.25

****

26.0%

$93.40-$184.53

Express Scripts (NASDAQ:ESRX)

$65.91

****

17.7%

$32.32-$66.65

PharmaNet Development (NASDAQ:PDGI)

$39.08

***

16.7%

$18.59-$39.43

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 bought before they are discovered. Witness biotech research helper PharmaNet, which has returned 70% over the past 52 weeks, easily besting the S&P 500's 2.3% return over the same period.

Of course, big stocks can also go wild when growth demands it. Consider InterContinental Exchange, which produced a red-hot third quarter last month. Shares of the electronic exchange are up roughly 85% over the past year.

Keep 'em flying
But neither of these stocks impresses as much as TransDigm does. Perhaps it's the business: Like another rocket stock, Astronics (Nasdaq: ATRO  ) , TransDigm is a custom-designer of aerospace components.

And, also like Astronics, TransDigm is growing fast thanks to a rise in the number of commercial and military aircraft being built, such as Boeing's increasingly popular 787. But the glut of new planes isn't why TransDigm tops the tower today.

Nope, I like TransDigm because it is an aftermarket supplier. More than 60% of its revenue -- which improved by 45% in the recently completed fourth quarter -- comes from providing parts to keep existing fleets flying, reports Investor's Business Daily.

See the pattern here? If commercial carriers order more jets, TransDigm profits. If commercial carriers maintain their existing fleets, TransDigm profits. Here's how CAPS investor Zen1212 put it in a recent pitch:

I liked the comparison of this company and Gillette's razor blades. You know, you buy the razor real cheap and they get you with the blades. This company does the same to airplane manufacturers and airlines are stuck with planes for much longer than I am to my Mach-3.

I'll add that, despite these obvious advantages, TransDigm sports a meek 0.7 PEG ratio. That's a steep discount to the industry's 1.36 average and makes the stock worthy of my CAPS watch list.

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

Meet me back here tomorrow for more rocket stocks.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 540500, ~/Articles/ArticleHandler.aspx, 8/31/2014 2:27:18 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement