5 Top Tweeners

If you've ever sought to get seriously rich from stocks, then you've owned a tweener.

Neither up-and-coming superstars nor dominant veterans, tweeners are poised precariously in between. They're not as hot as they once were, and they're vulnerable to both young upstarts and old stalwarts. But they've honed their skills enough to remain a force to be reckoned with.

The stock market has plenty of tweeners. They'll either create billion-dollar fortunes as they come to dominate industries, as Cisco (Nasdaq: CSCO  ) and Microsoft have, or they'll be destroyed in the process, as Gateway almost was. That's the problem -- investing in tweeners can be dangerous and exceptionally profitable. By picking his winners well, David Gardner produced nine years of 20% average returns hunting for misunderstood multibaggers in the making. His team at Motley Fool Rule Breakers continues the tradition today.

Let's have the list
You, too, can join in the effort, thanks to Motley Fool CAPS. Each week, we'll use the database to find three-star stocks that are expected to boost earnings by at least 15% annually over the next five years. Here are the latest contenders:

Company

CAPS Rating (out of 5)

5-Year Growth Estimate

American Oriental Bioengineering (NYSE:AOB)

***

29.0%

Power Integrations (NASDAQ:POWI)

***

28.7%

Citrix Systems (NASDAQ:CTXS)

***

16.5%

Best Buy (NYSE:BBY)

***

15.1%

Chartered Semiconductor (NASDAQ:CHRT)

***

15.0%

Sources: Motley Fool CAPS, Yahoo! Finance.

Bear in mind that this isn't a list of recommendations -- merely candidates for further research.

No doubt you're expecting me to pick Best Buy. (How do you not pick "Best Buy" in an article about best buys?) Trouble is, consumers are acting as if Fed chief Ben Bernanke should be fitted for a Darth Vader outfit. Well, also, January alone offered plenty of evidence that the retailer would be one of 2008's worst stocks.

Chartered Semiconductor, which operates a large and growing business for the outsourced development of semiconductors, should be a buy with all the manufacturing work moving offshore. Trouble is, Chartered is well behind top foundry Taiwan Semiconductor (NYSE: TSM  ) .

Does your portfolio have the power?
Power Integrations is exactly the sort of business that outsources its chip designs, which -- surprise! -- help to conserve power.

Boring, you say? Perhaps. But there's big money in this business. The company says its EcoSmart power-management chips have produced more than $2 billion in savings since 1998.

Power Integrations is flush as a result. Free cash flow blossomed to $51.7 million last year, up almost threefold from 2006. Cash and investments, meanwhile, equaled more than $200 million, or roughly one-quarter of the firm's going market value.

I can't see how that's fair. Nor, apparently, can top institutional investors. Recent buyers of Power Integrations include Jason Votruba of UMB Scout Small Cap (UMBHX) and Kevin O'Boyle of Presidio (PRSDX).

My guess is that they've spotted a winner early in its run. But that's my take. What's yours? Would you buy Power Integrations at current prices? Let us know by signing up for CAPS now. It's 100% free to participate.

See you back here next week for five more top tweeners.


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