5 More Unloved Growth Stocks

Ah, skepticism, how I love thee.

We rebel investors at Motley Fool Rule Breakers believe that multibaggers in the making, while not often cheap by the numbers, are always misunderstood. As such, they face extraordinary skepticism, which, in turn, makes them excellent value stocks.

More are out there. Each week, right here in this column, we'll hunt them down. Grab your keyboard.

What one stock can do for you
Really, it's worth your time. One home run stock can make all the difference to your portfolio.

Just ask David Gardner, captain of the good pirate ship Rule Breakers, who bought Amazon at a split-adjusted price of $3.24 a share in 1997. He's up more than 2,300% since.

That helped him overcome stinging losses from Sirius Satellite Radio, 3Dfx, and others, to put up nine years of better than 20% average annual returns as the leader of the real-money Rule Breaker portfolio.

Let the haters be your friends
Today, David and his team still seek misunderstood growers. You can, too, with the help of our completely free-of-charge Motley Fool CAPS investor-intelligence database, which currently contains information on more than 5,200 stocks.

CAPS applies user input to rate stocks from one (low) to five (high) stars. Using CAPS, we're once again going to search for one- and two-star stocks that have at least 5% of their available shares sold short, but are expected to grow their earnings by no less than 15% over each of the next five years.

Let's have the list
Here are five more unloved growth stocks:

Company

CAPS Rating

Short Interest

5-Year Growth Estimate

First Solar (NASDAQ:FSLR)

**

8.10%

53.8%

J. Crew (NYSE:JCG)

**

12.00%

23.8%

Deckers Outdoor (NASDAQ:DECK)

**

17.10%

21.3%

Pacific Sunwear (NASDAQ:PSUN)

**

14.90%

15.5%

Globalstar (NASDAQ:GSAT)

**

13.40%

15%

Sources: 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.

Former Hidden Gems pick Deckers would be the compelling choice here, but as has been the case with Crocs (Nasdaq: CROX  ) and True Religion, there's really no telling when investors will be disappointed by Deckers' UGG-ly results. (It's happened before.)

No, really, you look good with a crew cut
But that's the apparel business, right? Not necessarily. Have a look at these numbers for J. Crew:

Metrics

Trailing Twelve Months

2006

2005

2004

Return on assets

22%

20.5%

16.2%

8.2%

Return on capital

45%

45.9%

44.3%

20.4%

Gross margin

44.2%

43.4%

41.8%

40.5%

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

Now, here's how its closest competitor, Gap (NYSE: GPS  ) , performs on the same basis:

Metrics

Trailing Twelve Months

2006

2005

2004

Return on assets

8.1%

8.5%

11.6%

12.6%

Return on capital

12.6%

12.6%

17.1%

18.3%

Gross margin

35.3%

35.4%

36.6%

39.2%

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

At 19.7 times trailing earnings, J. Crew trades for a slight premium to Gap (21) and a significant premium to the apparel store industry as a whole (13.1). But J. Crew is among the very best in its industry. A modest premium is the very least you should expect to pay as an investor.

Intrigued? Do your own due diligence and then check in with thousands of other investors at CAPS. And, 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 unloved growth stocks.


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