5 More Top Growth Stocks

Are you really a growth investor?

It's worth asking. Fast-moving pharmaceutical stocks have taken a beating recently, leading to a slew of bargains for those with the guts to buy. Just ask investors who hold shares of Motley Fool Rule Breakers recommendation Momenta Pharmaceuticals (Nasdaq: MNTA  ) , which fell more than 5% Thursday on no news whatsoever. Sheesh.

No matter. 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 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 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

Percent Bulls

5-Year Growth Estimate

Shanda Interactive (Nasdaq: SNDA  )

842

97.3%

29.1%

Hornbeck Offshore (NYSE: HOS  )

337

97.9%

22.5%

ABB (NYSE: ABB  )

1,344

96.8%

21.7%

Noble (NYSE: NE  )

1,614

98.7%

21.5%

Globecomm Systems (Nasdaq: GCOM  )

187

97.3%

21.0%

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.

We've some great companies to work with. Hornbeck Offshore's rigs survived the fury of Gustav. Automation provider ABB is a little-known but massive blue chip. Satellite specialist Globecomm beat analyst expectations in its fourth-quarter results released this week. And driller Noble, with a 0.36 PEG ratio, trades for below its expected growth rate.

A game of high finance for Shanda
But my top pick today is Rule Breakers recommendation Shanda Interactive, a Chinese gaming specialist similar in many ways to another rebel: NetEase (Nasdaq: NTES  ) . The key difference? Shanda is a lot cheaper -- a 0.39 PEG versus a 1.03 PEG for NetEase.

And now management wants to take advantage of this. Executives this week announced a plan to offer $155 million in convertible notes paying 2.0% a year. The proceeds will be combined with existing cash to repurchase as much as $175 million in American depositary receipts.

Call it an act of financial gamesmanship for a company known for its games. But can it work? I think so; 2% is a pittance and Shanda has set the per-share conversion rate at $35, a better-than-25% premium to current prices.

The result? Either the plan backfires and shareholders add 2% annually to further share-price losses, or they see huge returns on invested capital. I think the odds favor the latter; management has a history of producing rising, double-digit ROIC.  

But that's my take. I'm more interested in your stance. Would you buy Shanda Interactive 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!

Fool contributor Tim Beyers, who is ranked 21,156 out of more than 115,000 participants in CAPS, didn't own shares in any of the companies mentioned in this article at the time of publication.

Tim seeks the best of the tech as a contributor to Motley Fool Rule Breakers, which counts NetEase among its holdings. Get access to all of Tim's writings here. The Motley Fool has a disclosure policy.


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