America's Next Top Growth Stock

Growth stocks are the beauties of the stock world, plain and simple. They're exciting, they have good stories, and they can make you a lot of money.

But for all their beauty, growth stocks are also the prima donnas of the market. They can be erratic, they don't always live up to their billing, and they tend to attract a shareholder base that's ready and willing to run at the first signs of slowdown. For those reasons, caution is certainly in order when you enter the world of growth investing.

Fortunately, The Motley Fool's CAPS service brings us the collective intelligence of a community of more than 145,000 investors and is a great resource for separating the Jessica Albas from the Jabba the Hutts. Each of the stocks competing for this week's top spot has a market cap of at least $100 million, and each grew its earnings per share by an average of 15% or more per year over the past three years. So let's go ahead and meet our contestants.

Company

Three-Year
EPS Growth Rate

Price-to-Earnings Ratio

CAPS Rating
(out of 5)

Green Mountain Coffee Roasters (Nasdaq: GMCR  )

88%

62.3

*

Trina Solar (NYSE: TSL  )

68%

27.6

**

New Oriental Education

48%

37.4

*

Akamai Technologies (Nasdaq: AKAM  )

33%

32.3

*****

Freeport-McMoRan (NYSE: FCX  )

24%

12.1

****

Sources: Yahoo! Finance, Capital IQ (a Standard and Poor's company), and CAPS as of Jan. 28.

Growth without good looks
Green Mountain Coffee Roasters has become the Adrian Peterson of growth companies: You can't stop it; you can only hope to contain it. It's been pretty much all smiles for investors, with shares up more than 1,500% over the past five years.

But can Green Mountain be a Starbucks (Nasdaq: SBUX  ) in the making? While the comparison isn't perfect, because of the difference in business models, Green Mountain and its K-Cups certainly seem to be taking the coffee world by storm. However, many members of the CAPS community seem to suspect that future growth won't live up to the high expectations that a P/E near 70 suggests.

For many reasons, China is the place to be for investors these days. The country is growing so fast that officials have been taking steps to try and cool things off a bit. So it should be of little surprise that investors have gotten pretty excited about New Oriental Education and its blazing-fast growth.

But on CAPS, many members are skeptical of the stock and the company, citing both the very healthy valuation on the stock, and the potential damage that increased competition could do to the company's growth rate.

And while Trina Solar's two-star rating isn't as bad as the single-star marks for both Green Mountain and New Oriental, it's hardly a rousing endorsement of the stock. In fact, the community has had relatively sour views of quite a few major solar companies. For those who feel a need to harness the sun's rays in their portfolio, the community seems to prefer the likes of solar wafer supplier ReneSola.

Strutting their stuff
While the stocks above haven't been able to sufficiently inspire CAPS members, Freeport-McMoRan has.

For those not in the know, Freeport is one of the world's largest suppliers of copper, gold, and molybdenum (a substance used in high-strength steel alloys). Among its worldwide portfolio of assets, the company has ownership in the Grasberg minerals district, which it claims "contains the largest single recoverable copper reserve and the largest single gold reserve of any mine in the world."

Though copper prices took a major hit in 2008, they've risen significantly since then. Thanks to the company's leadership position and shrewd management, it's been beefing up its bottom line since taking a hit back in '08. Taken all together, this inspired my fellow Fool David Lee Smith to declare last month that "Freeport still has room to run."

But Freeport didn't quite have the votes on CAPS to help it overcome this week's top growth stock, Akamai Technologies.

Akamai has been a favorite among growth investors for some time now, but for those not familiar with the company, it provides the technology that companies like IBM (NYSE: IBM  ) and Apple (Nasdaq: AAPL  ) need to effectively and efficiently deliver digital media over the Internet.

Akamai's valuation can be somewhat of a moving target, because of the way the company bills its customers. However, my fellow Fool Anders Bylund recently pointed out that the stock is trading at 25 times trailing free cash flow, which he believes is a bargain based on the company's smoking growth rate. In fact, Anders thinks Akamai could be the best stock for 2010.

But Anders isn't alone in his adoration of Akamai. On CAPS, 2,727 members have given the stock a thumbs-up, versus just 105 who think it will lag the rest of the market. Late last year CAPS All-Star FreeMortal gave the stock a thumbs-up and chimed in with:

Huge and expensive infrastructure and market share present a fairly deep and wide moat. They are pervasive, yet subtle. Just by cruising the web, your computer will communicate with Akamai servers more than Google. If [Google] and [Oracle] had an 800 pound baby...

Now go vote!
Do you think Akamai has what it takes to be America's next top growth stock? Head over to CAPS and let the rest of the community know what you think.

Effective growth investing usually involves being very forward-thinking. Check out what Todd Wenning has to say about the greatest stocks of the next generation.

Akamai Technologies, Green Mountain Coffee Roasters, and Google are Motley Fool Rule Breakers recommendations. Apple and Starbucks are Motley Fool Stock Advisor picks. The Fool owns shares of Oracle. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out the stocks he's keeping an eye on by visiting his CAPS portfolio, or you can connect with him on Twitter @KoppTheFool. The Fool's disclosure policy would surely win America's Next Top Disclosure Policy, but for some reason there's no such contest.

 


Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1097919, ~/Articles/ArticleHandler.aspx, 10/31/2014 9:47:19 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement