Growth Investors' Dream Stocks

Investors are always hunting for the next big stock -- the dream stock whose price increases several times over when the market finally discovers it. It's easy to look back and see what the 10 best stocks of the past decade were. But for my part, I'm more interested in the tools that can not only help me find new stock ideas, but also have the resources necessary to evaluate tomorrow's greatest companies.

There is a tool that offers a variety of resources to help with finding tomorrow's leaders: Motley Fool CAPS.

We'll enlist CAPS to screen for top growth stocks and get the story behind them. CAPS' nifty screener will help us find stocks with:

  • A market cap of at least $500 million.
  • A trailing three-year earnings-per-share growth rate of at least 25%.
  • A trailing three-year revenue growth rate of at least 30%.
  • A price-to-earnings ratio of less than 25.

Then we'll tap the collective intelligence of our 110,000-plus CAPS investors to see whether these companies present real opportunities -- or whether the numbers fail to tell the true story.

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.

Company

Revenue Growth Rate, Past 3 Years

CAPS Rating (out of 5)

NYSE Euronext (NYSE: NYX  )

109%

*****

Noble (NYSE: NE  )

37%

*****

Freeport-McMoRan (NYSE: FCX  )

76%

*****

Barrick Gold (NYSE: ABX  )

50%

****

GameStop (NYSE: GME  )

49%

****

Data and star rankings from CAPS. All data as of June 15.

Copper is the new gold
Tremendous growth over extended periods is usually reserved for small-cap companies -- those with plenty of room to run in underpenetrated markets. But several commodity players have been showing astounding growth over the past few years, as a result of strong organic growth and acquisitions among many of the players.

Precious-metal miner Freeport McMoRan put together that strong one-two punch combination to deliver knockout first-quarter results. The acquisition of copper producer Phelps Dodge last year boosted the numbers, but increases in copper prices made even a higher contribution to profits. Revenue of $5.7 billion more than doubled from the $2.2 billion reported a year earlier, and profits doubled as well, up to $1.12 billion.

But great growth from even behemoth mining companies may not be a thing of the past. Continued demand from the likes of India and China and supply constraints should keep Freeport and peers such as Southern Copper cashing in on rising copper prices well beyond 2008.

With Freeport trading at a relatively low forward multiple of 10.3, some investors believe that valuation, combined with heightened demand and higher prices in the commodities markets, could make the company a potential takeover target. Brazilian-based miner Vale (NYSE: RIO  ) is set to raise up to $15 billion to add properties to its diverse mining repertoire, and Freeport's copper resources are considered a good fit. Add it all up, and you find that CAPS investors are overwhelmingly bullish on Freeport, with nearly 98% of the 3,853 investors rating the company believing it will outperform the market.

Gaming growth
Despite scary headlines saying that the economy is destined to get worse, certain areas of the economy keep cruising along. Count the video game space among the winners -- despite consumers' reluctance to spend on big-ticket items, gaming consoles and games from Sony, Microsoft (Nasdaq: MSFT  ) , and Nintendo are still flying off the shelves. Market researcher NPD Group said sales of games, consoles, and accessories rose 37% in May from the same month last year.

And since not everyone wants to grab the latest Wii or Xbox, there are probably a good number of penny-pinchers dropping by retailer GameStop to pick up a used console or games instead. Good thing for GameStop -- the company makes higher margins on used gear sales, so it's somewhat recession-resistant.

GameStop impressed the Street yet again with year-over-year earnings gains of 151% in its recent first quarter. The company reported that increased penetration of consoles has helped grow GameStop's potential market by 34%, and it's noticing an increase in the female demographic. The trends have GameStop CEO Richard Fontaine bullish about growth in the near future, and CAPS investors largely follow suit -- nearly 96% of the 2,668 investors rating GameStop see it outperforming the market.

Let 110,000 investors be the judge
The collective wisdom of a huge pool of investors can help give context to a page of numbers developed through a stock screen. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own due diligence.

Want to run your favorite parameters through the CAPS screener? It's totally free, including the extensive investor knowledge base of ratings, commentary, and blogs. You can even give your own opinion -- both good and bad -- on any company you wish in Motley Fool CAPS.

GameStop has risen a whopping 475% since being recommended by the Motley Fool Stock Advisor service in 2004. To see all of the stocks that have helped Tom and David Gardner beat the market by 44 points on average, take a free 30-day trial.

Fool contributor Dave Mock dreams of stocks and sugarplum fairies, but not together. He owns no shares of companies mentioned here and is the author of The Qualcomm Equation. Microsoft is an Inside Value selection. NYSE Euronext is a Rule Breakers pick. Nintendo is a Stock Advisor pick. The Fool's disclosure policy screens the good, the bad, and the ugly.


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