3 Awesome Growth Stocks

I'm too lazy to be a trader. Don't get me wrong: I want the stock market to make me rich. But I'd much rather achieve that goal by buying the right stock and watching it grow relentlessly for years than by flitting from one stock to the next, hoping to pick up a dollar here and a dollar there.

So I'm always on the lookout for stocks that meet three important investment criteria:

  1. Growing
  2. Cheap
  3. An excellent business

All these factors are important. If I'm not buying a superior, growing business, then I can't expect it to achieve huge returns over the long term. And if I pay too much, it increases the risk and cuts into my returns.

But when the three characteristics come together, it can lead to an awesome investment that pays off for years or even decades.

Right now, I see three stocks that can potentially achieve such heights.

Awesome stock No. 1
Apollo Group
(Nasdaq: APOL  ) provides higher education to working adults -- a group not well-served by traditional universities. It's been one of the greatest growth stories over the past decade, with its revenue increasing by almost 10 times over that period. Apollo's the biggest and the best in the business. Solid operating results and economies of scale have helped the company to achieve net margins of greater than 15% -- several percentage points higher than competitors Career Education (Nasdaq: CECO  ) and DeVry (NYSE: DV  ) .

Apollo's shares have been on a downhill slide since 2004 amid ongoing industry scandals. Apollo itself has recently missed a deadline for filing its quarterly report, because it inaccurately reported the dates that executive option grants were approved and miscalculated option-related tax liabilities. Simultaneously, the company's growth has slowed. The market seems to have assumed the worst -- that Apollo has no more room to grow. I think the company still has opportunities, and that the shares are worth more than $50.

Awesome stock No. 2
Since its 1995 founding, Getty Images (NYSE: GYI  ) has quickly grown to become a $2.5 billion company, providing photographs and videos to businesses. Getty owns a huge image library that it distributes over the Internet to advertising agencies and graphic designers worldwide. As a result, it practically prints cash, enjoying net profit margins in the high teens.

Recently, the stock's been hammered by fears of new competition from JupiterMedia. New subscription and micropayment pricing models do have the potential to hurt Getty's margins, but I think there's a good chance that the fears are overblown. Getty's huge image library, image-searching technology, and skills at creating new content act as barriers against competition. And the stock's now trading at a low double-digit price-to-free cash flow ratio. Even considering the risks, I think shares are 25% undervalued.

Awesome stock No. 3
Goldman Sachs
(NYSE: GS  ) is a behemoth in investment banking, trading, and asset management. After nearly 140 years of operations, it's become one of the most prestigious names on Wall Street. Only a handful of companies, including Merrill Lynch (NYSE: MER  ) , Lehman Brothers (NYSE: LEH  ) , and Bear Stearns have the resources, contacts, and institutional knowledge to compete with Goldman.

Yet Goldman, with estimated five-year growth of 15%, is trading at a price-to-earnings ratio of less than 11. Since Goldman derives more than half of its revenue from trading, investors may be concerned that things just can't get any better than they've been during the recent bull market. Yet long-term, barring a trading catastrophe, the company has a strong enough position that it's likely to grow almost indefinitely. At these prices, the stock looks cheap to me.

The Foolish bottom line
These three stocks all exhibit growth, a leading competitive position, and a cheap price -- a combination that we love when picking stocks for Inside Value. Despite the fact that businesses combining these three characteristics are rare, you should seek them out, because they can deliver superior returns, year after year.

Nevertheless, none of these companies is a formal Inside Value recommendation. It's not that these stocks don't have lots of potential. They do. It's just that we see other stocks right now that share these three attributes, but have an even greater upside. If you're interested in seeing what I'm talking about, you can check out Inside Value here with a free 30-day guest pass.

Fool contributor Richard Gibbons is also too lazy to make his bed in the morning. He owns shares of the Apollo Group, but does not own any other stocks discussed in this article. The Fool has a disclosure policy.


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