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. That's why all-star investors bet on growth over the very long term. They know that:
- Businesses that make investors billions always begin as growth stocks.
- The best of them feature massive and identifiable competitive advantages.
- 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 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 and which 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, 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 |
|---|---|---|---|
|
Mindray Medical |
927 |
911 |
32.0% |
|
Silicon Motion |
428 |
419 |
30.0% |
|
PetMed Express |
456 |
447 |
16.7% |
|
NVIDIA |
1,931 |
1,849 |
16.0% |
|
Valero Energy |
2,886 |
2,777 |
15.9% |
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 Chinese medical device maker and Rule Breakers recommendation Mindray Medical, which competes on price but spends big on research and development in order to maintain a technical edge in its home country.
Get that silicon in motion
Silicon Motion, though, the maker of memory-chip controllers for MP3 players, cameras, and phones, gets today's nod. Here's why I own shares today:
|
Metrics |
Trailing 12 Months |
2006 |
2005 |
2004 |
|---|---|---|---|---|
|
Return on capital |
14.2% |
13.8% |
17.1% |
21.6% |
|
Return on equity |
22.2% |
23.6% |
27.5% |
21.0% |
|
Gross margin |
53.1% |
53.4% |
50.0% |
43.5% |
What impresses me is that, even as the global market for semiconductors and memory chips in particular has bounced about like a Superball on concrete, management has maintained consistent margins and double-digit returns on equity and capital. That's no small feat.
Yet no one should be surprised. Here's how Foolish colleague Anders Bylund made the case for Silicon Motion recently:
The next time you buy a gadget built around flash memory, like an Apple
iPod or a digital camera from Sony (Nasdaq: AAPL) , you should send an investor-minded brain wave to the memory controller industry. Investing in the tiny chips that make memory modules tick can be better than buying the memory makers themselves. (NYSE: SNE)
Why? Because memory prices come and go and demand for memory chips rises and falls, but the chips that allow tiny devices to access memory -- the sort of chips that Silicon Motion designs -- will be popular for as long as consumers crave digital devices.
But that's my take. What's yours? Would you buy Silicon Motion 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 with five more top growth stocks. Fool on!
