7 Stocks With a Bright Future

Investments that have been successful over the long term almost assuredly share at least one thing in common -- growth. You'll be able to find very few companies that have been unable to increase their earnings and yet still have produced good returns for shareholders.

Think about it this way: dividends aside, investors reap their gains when a company's stock price goes up. The stock price is typically driven by two levers, earnings and the multiple that investors are willing to pay for those earnings. Since earnings multiples tend to fluctuate within a certain range, long term investors should be have a keen focus on the company's ability to increase earnings.

Does it seem too simple? Maybe keeping it simple is a good plan sometimes. After all, as Third Avenue's Marty Whitman has put it:

Based on my own personal experience -- both as an investor in recent years and an expert witness in years past -- rarely do more than three or four variables really count. Everything else is noise.

With that in mind, I've kept it simple and dug up five stocks that analysts expect will notch long-term earnings growth of 10% or better. I've also pulled up the CAPS rating for each stock to show what the 165,000 members of the Motley Fool's CAPS community think of the company's prospects.

Source: Capital IQ, a division of Standard & Poor's, Yahoo! Finance, and CAPS.

Wall Street analysts aren't known for being supernatural in their forecasting skills, so not all of these estimates may pan out. However, this list may be a good place to dig in for further research -- in fact, I'll even get you started with some thoughts on these stocks.

Cool to the touch?
To look at Moody's financial performance, you'd think CAPS members were crazy to let this stock sit at a lowly two stars. The company stayed consistently profitable through the financial crisis, has a very manageable amount of debt, and produced a mind-blowing 85% return on capital over the past 12 months.

But trouble is brewing as the government has its sights set on shaking up the entire ratings industry. One proposal being considered is to completely remove the government's blessing from the industry and do away with the requirement that money market funds and other large investors rely on "Nationally Recognized Statistical Ratings Organizations" like Moody's. In addition, the company revealed last month that it is under investigation by the SEC.

While Oshkosh and Electronic Arts aren't facing government-driven litigation, many CAPS members are at odds with analysts' sunny projections for their respective businesses. Though Oskhosh's performance over the past 12 months is far better than the dismal fiscal year that it finished last September, CAPS members have stayed somewhat skeptical of the near-term prospects for this truck manufacturer. The company's hefty debt load isn't helping to win any CAPS fans either.

Electronic Arts, meanwhile, faces tough direct competition in its industry as well as indirect competition for leisure time from websites like Facebook. As a result of these concerns, my fellow Fool Rick Munarriz recently suggested avoiding the entire video game sector. It seems like the folks behind the Madden football series could use a hail mary of their own.

As a shareholder myself, I part ways with the CAPS community's lukewarm assessment of Wal-Mart's prospects. One of the primary complaints among members is the concern that a recovering economy will cause shoppers that "traded down" to Wal-Mart to return to their normal shopping destinations. While this certainly seems like a possibility, it neglects the possibility that the company's massive core customer base will simply spend more at Wal-Mart as the economy rebounds.

Bringing the heat
Another stock where I can talk my own book is Motley Fool Inside Value pick Intel. It's tough to argue that this chip champ isn't a great business. It has a rock solid position in its industry, a healthy competitive moat, and -- tech stock or not -- it offers investors a nice dividend.

With that in mind, the biggest question for investors is probably whether the stock is attractively valued, and at less than 11 times forward earnings, I think there's a very solid argument in favor.

And while Intel's gotten plenty of love from the CAPS community, fellow tech industry players EMC and Akamai have managed to score high ratings. Why? In the case of EMC, the company owns better than an 80% share of former subsidiary VMWare -- a stake that is currently worth roughly $22 billion. Considering the heady growth expectations that analysts have for VMWare and the cloud computing segment that it is driving forward, that stake could end up even larger.

But don't forget -- even after you back out the massive VMWare stake from EMC's current $37 billion market cap, you still get EMC's core business, which is a market leader in data storage products that produced roughly $960 million in cash flow during the first quarter.

As for Akamai, like VMWare, the company is a big player in an expanding industry -- in this case, content delivery networks. At the end of last year my fellow Fool Tim Beyers picked out Akamai as the top tech stock for 2010, and more recently suggested that it can continue to excel despite increasing competition.

There is a similarly bullish beat following Akamai on CAPS. Late last week, CAPS member AmericanGenius gave the stock a thumbs up and said: "The potential for growth in Internet video is mind blowing, and AKAM is a rule breaking work horse. Buy it and enjoy it."

Of course, as is often the case, investors that want to ride a growth company like Akamai have to pay up for the privilege. And while the price-to-earnings ratio in the table above may seem pricey enough, both the company and analysts like to point to a "normalized" net income number that excludes stock-based compensation. Based on 2009 numbers, the stock's P/E is 33 using the normalized earnings per share, but a notably richer 51 when based on GAAP earnings.

What do you think?
Do these stocks have what it takes to post solid growth in this economy? Or have analysts been too optimistic? Head over to CAPS and let the community know what you think of the stocks listed above.

Hungry for more growth? Check out the pick that Jordan DiPietro thinks could be the next revolutionary stock.