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
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.com at a split-adjusted price of $3.24 a share in 1997. He's up more than 2,700% since.

That helped him to overcome stinging losses from Guitar Center, 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 covers more than 5,300 stocks.

CAPS applies user input to rate stocks from one (low) to five (high) stars. Using CAPS, we'll once again search for one- and two-star stocks that have at least 5% of their available shares sold short, but which 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 today's unloved growth stocks:

Company

CAPS Rating

Short Interest

5-Year Growth Estimate

JetBlue Airways (NASDAQ:JBLU)

**

20.80%

24.9%

Sirius Satellite Radio (NASDAQ:SIRI)

**

7.40%

19.5%

Vocus (NASDAQ:VOCS)

**

7.70%

28.3%

JDS Uniphase (NASDAQ:JDSU)

**

6.80%

24.6%

Forrester Research (NASDAQ:FORR)

**

8.00%

20%

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.

The technophile in me almost went with optical networking specialist and former dot-com darling JDS Uniphase. Here's why:

Metrics

Trailing 12 months

FY 2007

FY 2006

FY 2005

Return on capital

(1.9%)

(2%)

(4.8%)

(4.7%)

Gross margin

38.5%

37.3%

31.3%

17.6%

Free cash flow*

$52.4

($14.4)

($148.4)

($175.7)

Source: Capital IQ, a division of Standard & Poor's.
*Numbers in millions.

Those aren't great numbers, but they're trending upward. I suspect it won't be long before JDS Uniphase joins peer Agilent (NYSE: A  ) in the green pastures of profitability. (Fingers crossed.)

A Forrester for the trees
For today's top pick, I'm going with something a little lighter. As in a lighter business model -- one capable of generating ample free cash flow while remaining steeped in innovation.

That, in a nutshell, is Forrester Research. Forrester specializes in providing independent market research covering varying sectors of the information technology industry.

Options-backdating problems from February have soured many CAPS investors on this stock. But those issues have since disappeared. Cash flow, fortunately, hasn't. Forrester has taken in $34 million in free cash flow over the trailing 12 months.

The balance sheet has improved as a result. The firm today possesses roughly $250 million, or $10.48 per diluted share, in cash and short- and long-term investments. Think about that for a second. Almost 40% of Forrester's market value is in cash and securities. Is that really fair? I can't see how.

And while I don't doubt that Gartner (NYSE: IT  ) is the heavy when it comes to IT market research, Forrester sports the better balance sheet and more reasonable valuation. (It boasts a 1.20 PEG ratio, versus Gartner's 1.62.) I'll take my chances with the up-and-comer, thanks.

But that's me. What would you do? Would you buy Forrester Research at today's 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 unloved growth stocks.


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