4 Must-Have Stocks for a Growth Portfolio

Disenchanted with the poor returns and high fees on mutual funds, some family members recently asked me to help them mold a good growth portfolio.

The working thesis I used for my recommendations was: "Invest first and foremost in companies that demonstrate exceptional levels of innovation, with special emphasis given to those that we believe will be around decades from now."

Yesterday, I offered up the four stocks I recommended as core holdings. Today, I'm telling you about the four stocks I told them were worth investing in, but probably not at levels above 10% of their portfolio. Though these four companies are excellent investments, they don't have the impenetrable moats to keep competitors at bay that yesterday's suggestions had.

Add these four to your watchlist to stay up-to-date on all the latest news, and at the end I'll offer you access to a special free report on a company that founding Fool David Gardner believes could be the next rule-breaking multibagger.

Westport Innovations (Nasdaq: WPRT  )
This Canadian company is in the business of designing engines for cars, trucks, and locomotives that run solely on natural gas. In order to understand the vast appeal of a fleet that runs on natural gas, take a look at the U.S. Energy Information Association's projections for the price of an equivalent to a gallon of gas over the next 30 years.

Source: U.S. Energy Information Administration, Annual Energy Outlook 2011. Natural gas assumes 7.9 gallons per 1,000 cubic feet.

The company's value proposition is already attracting customers. A partnership with long-haul trucker Cummins (NYSE: CMI  ) , in which the two parties split profits, is already in place.

I already own shares of Westport, have made a CAPScall on my profile, and I think any price below $30 would represent a great chance to get another round of shares.

lululemon athletica (Nasdaq: LULU  )
I've been covering this retailer for a while now, and I'm very impressed with the growth strategy management has in place. Appealing primarily to high-end yogis, Lululemon eventually got an in by offering yoga instructors free gear in return for wearing their products while giving classes. That unique approach also includes the practice of offering free yoga sessions at least once per week in their stores throughout the United States.

Recently, analysts were concerned that growth was slowing, but those of us following the company knew it had more to do with the company struggling to keep up with huge demand. With just 165 stores open worldwide as of last October, there's still a lot of room for growth.

I already own shares and have made a CAPScall on my profile, and I think any price below $50 would be an excellent opportunity to snatch up more shares.

Apple (Nasdaq: AAPL  )
Some people might wonder why this wasn't one of the core stocks I suggested. Here's why: Apple's primary advantage is obtained by making products that are so revolutionary we didn't even know we needed them until they came to market. Steve Jobs played a big role in that, and without him, I think it's prudent to approach with caution.

That said, the opportunities for Apple are immense if the company continues to fire on all cylinders. With iPhone sales exploding, a new iPad on the horizon, and international sales booming, there's no reason not to own shares of Apple. I believe Apple is pretty cheap right now. I've backed up that belief with my own money, and on my profile.

  • Add Apple to My Watchlist.

IPG Photonics (Nasdaq: IPGP  )
If ever there were a disruptive innovator, IPG is it. The company was the first mover in the fiber-optic laser industry. Because it uses fiber optics instead of carbon, IPG produces lasers that are far more powerful at a lower cost.

The company is also vertically integrated -- producing its own diodes. That's good news when times are good, but can be a liability when IPG's industrial clients go through a market downturn. Basically, this scare (over a cyclical softening of demand) explains its recent price spill since the summer. As with all of the other companies I've mentioned, I've backed up this pick with my own money, and on my profile, and I think shares are priced for purchasing now.

A name for this type of investing
Truth be told, the "growth" moniker may not be the most accurate for this type of investing. By focusing on innovation, I'm really zeroing in on what Fool Founder David Gardner calls Rule Breakers.

David runs a highly successful newsletter based on Rule Breakers, and his team has recently assembled a special free report: "Discover the Next Rule-Breaking Multibagger." Inside the report, you'll find out about a company that's poised the benefit from our aging population. Get the report today, absolutely free!

Fool contributor Brian Stoffel owns shares of all of the companies mentioned except for Cummins. You can follow him on Twitter at @TMFStoffel.

The Motley Fool owns shares of lululemon athletica, IPG Photonics, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, IPG Photonics, lululemon athletica, Westport Innovations, and Cummins, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (17)

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.

  • Report this Comment On January 13, 2012, at 6:24 PM, sachamay wrote:

    I disagree with Apple, I think the radical shifts in momentum will be with Nokia, Microsoft, and Intel from 2012-2015. I wrote a couple of articles on why I'm so convinced this will happen, check them out at:

    http://www.criticalpoint.co/blog-2

  • Report this Comment On January 13, 2012, at 9:36 PM, karlm1 wrote:

    I agree with scahamay regarding Nokia/Micrisoft. At CES this year the Nokia Lumia 900 has had beyond great reviews. Here are some of the awards Nokia won.

    Popular Mechanics Editor’s Choice Award

    Popular Science Product of the Future Award

    Popular Science Best of CES 2012 Award

    LAPTOP magazine’s Best Smartphone of CES 2012 Winner

    TechnoBuffalo Reader’s Choice Award

    PC Mag Best of CES Smartphone Award

    ZDNet Best Smartphone at CES 2012 Award

    Wired Gadget Lab 12 "best, quirkiest CES gadgets" Award

    I am guessing that it will also win the mobile best of show award.

    I have a Lumia 800 from england and love its looks and quality feel as well as the windows platform. I have been lucky enough to preview the 800 and I like it even better. Anyone looking for a high quality and high end device will end their search with this phone.

  • Report this Comment On January 13, 2012, at 9:56 PM, karlm1 wrote:

    I meant I previewed the Lumia 900. In the US your search will end here.

  • Report this Comment On January 14, 2012, at 9:16 AM, Zankudo wrote:

    Pop Mechanics also liked the Thermidor cooktop and the Caddy Cue as the top "gadgets". MS is old tech. Nokia is in the tubes struggling. Rim going the way of the dodo. You can place your bet on a mudder but chances are the race goes to the Seattle Slew of tech innovation. The Chinese make these things. What happened in HK this week when they couldn't get in to buy. But, you pays your money and you takes your chances.

  • Report this Comment On January 17, 2012, at 1:03 PM, baselineace wrote:

    I think you're a little late to the party on all these names.

  • Report this Comment On January 18, 2012, at 5:20 PM, 102971 wrote:

    Without Steve Jobs I think that Apple is overpriced. I sold my complete holding the day that he died.

  • Report this Comment On January 19, 2012, at 10:25 AM, DCUDFlyer wrote:

    @baselineace - 100% agree.

    Would like to hear some alternative suggestions for growth.

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