5 More Top Growth Stocks

Are you really a growth investor?

It's worth asking. Fast-moving tech stocks have taken a beating recently, leading to a slew of bargains for those with the guts to buy.

No surprises there. Market panics occur daily. Just ask investors who hold shares of tech media specialist TechTarget (Nasdaq: TTGT  ) , which on Monday fell more than 18% on no news whatsoever.

That's why all-star investors bet on growth over the very long term. They know that:

  1. Businesses that make investors billions always begin as growth stocks.
  2. The best of them feature massive and identifiable competitive advantages.
  3. Growth as a strategy has the capacity to deliver 20% or greater annual returns for decades at a time.

How we do it
Of course, not all growth stocks will do. Our weekly hunt is for the next great multibagger. But unlike David Gardner and his team at Motley Fool Rule Breakers, who scour everything from financial statements to trade magazines to clinical reports in their research, we're going to rely on our Motley Fool CAPS investor-intelligence database.

Specifically, we're looking for stocks that have earned a five-star rating in CAPS (the maximum) and that are expected to grow their earnings by at least 20% annually over the next five years. Five-star stocks are those that the community, on the whole, most believes will outperform the S&P 500.

Let's have the list
Now, with that preamble behind us, here are five more top growth stocks:

Company

No. of CAPS Ratings

Bullish CAPS Ratings

5-Year Growth Estimate

BluePhoenix (NASDAQ:BPHX)

330

324

26.3%

Spartan Motors (NASDAQ:SPAR)

353

340

25%

Activision (NASDAQ:ATVI)

1,137

1,103

23.8%

Seaspan (NYSE:SSW)

348

341

22%

Garmin (NASDAQ:GRMN)

3,734

3,600

20.9%

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.

At first, I was tempted to go with BluePhoenix, which specializes in modernizing aging technology. It's not a bad idea: New hardware and software from the likes of Sun Microsystems and Oracle is neither cheap to buy nor to install. Keeping the old stuff up and running just makes sense.

And not just to IT managers. Wall Street's best had the stock on their buy list in May.

Let there be stars in your eyes
But, as interesting as BluePhoenix and its 0.89 PEG ratio appear to be, I'd rather jam with Activision. The producers of the Guitar Hero franchise are rocking like never before.

Witness the company's recent guidance. For the current quarter, Activision now expects to earn $0.66 in per-share income, up from its original $0.51 estimate. The six-stringers are to blame; Guitar Hero III was the top-selling game on all consoles in October.

Can the party rage on into 2008? And, if so, will the stock jump like a nervous groupie awaiting word on a bid for backstage passes? I'd say so. Consider the numbers: Despite having a forward P/E ratio comparable to its closest peer, Electronic Arts (Nasdaq: ERTS  ) (26 vs. 29.2), Activision has a lower price-to-sales ratio (3.2 vs. 5.9) and a lower PEG ratio (1.2 vs. 2.1), implying higher expected growth.

Then there's the will of the CAPS community. Of the 23 investors who've rated Activision over the past week, including four All-Stars, only one is bearish on the company's prospects.

Do you agree? Would you buy Activision at current prices? Let us know by signing up for CAPS today. It's 100% free to participate.

See you back here next week for five more top growth stocks.


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