Monday's Top 5 Growth Winners

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.

Pity them, Fool.

How many times has uber-exchange and Motley Fool Rule Breakers rock star NYSE Euronext (NYSE: NYX  ) touched a new 52-week high on the way to becoming a four-bagger in less than three years? 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 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 nearing a four-bagger. How I wish I had listened to what Rick was telling me those many months ago.

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

Our candidates will be found 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 which earn at least three of five stars from our CAPS contingent.

But that's not always the best screen. Today, I'm bending the rules to allow another member of our Rule Breakers portfolio, Millennium Pharmaceuticals, onto our roster of rocket stocks. Here's the entire list:

Company

Closing Price

CAPS Rating (5 max)

5-Year Growth Estimate

52-Week Range

Bucyrus International (NASDAQ:BUCY)

$87.69

*****

30.0%

$42.05-$88.60

Millennium Pharmaceuticals (NASDAQ:MLNM)

$15.02

**

25.5%

$9.49-$15.09

Astronics (NASDAQ:ATRO)

$52.13

*****

25.0%

$14.56-$52.15

Transocean (NYSE:RIG)

$129.39

*****

22.9%

$72.47-$131.51

Genlyte Group (NASDAQ:GLYT)

$94.47

****

16.0%

$57.15-$94.64

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 get discovered. Witness Millennium, which, in spite a substantial bear following, has outdistanced the S&P 500 by nearly 30 percentage points over the past 52 weeks.

Hunting for sunken treasure
Driller Transocean has done even better, up more than 74% over the past year. And yet, in looking at its 0.69 PEG ratio, I'm forced to wonder if this stock is still cheap.

"Could be" is the operative phrase, however. The industry average PEG is 1.00 and some peers trade for less than Transocean does. Noble (NYSE: NE  ) , which has been a target for superior investors recently, and its 0.53 PEG is a good example.

Nevertheless, Transocean's management has been taking full advantage of the favorable market conditions in which it operates:

Return on Capital

Trailing 12 Months

2006

2005

2004

Return on assets

13.4%

7.0%

4.1%

1.7%

Return on capital

15.1%

7.8%

4.4%

1.9%

Return on equity

36.0%

18.7%

9.3%

2.1%

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

Color me impressed.

And I'm not the only one. CAPS investor Pescadormitch on Monday rated the stock to outperform, calling Transocean a "monopoly in the deep water drilling world."

I have doubts about whether that's true. Were it so, regulators would be hesitant to agree to allow Transocean and peer GlobalSantaFe to wed. No matter. I see ample evidence of a well-run company operating in a very necessary business -- yet whose stock remains cheap.

But that's just my opinion. What's your take? Would you buy Transocean at today's prices? 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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