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. Motley Fool Rule Breakers pick Ebix may have taken a hit with the rest of the market recently, but the growth stemming from its superior insurance-industry software has left investors in the company sitting pretty over the past three years.
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 125,000 investors. It's a great resource for separating the stock market's Jessica Albas from its 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 net profit per share by an average of 20% or more per year over the past three years. (Run the screen for yourself to see the latest results.) Let's meet our contestants.
VMware
Virtualization is where it's at for software maker VMware
Strayer Education
(In my best Dwight Schrute voice:) Question -- what is one of the best places to hide out from a recession? A cave? Good guess, but no, the correct answer is "school." Investors certainly seem to be looking at education as a safe haven that will attract plenty of customers; they've sent stocks like Strayer Education
The Travelers Companies
Growth for The Travelers Companies
Activision Blizzard
The world's economic predicament may be anything but fun and games, but the folks at Activision Blizzard
United States Steel
As one of the world's largest integrated steel manufacturers, US Steel
The envelope, please ...
The voting is in, and the CAPS community members have shared their opinions. Strayer, sporting a two-star CAPS rating, is the first stock we'll ask to take a hike. Many CAPS members have cited both the stock's rich valuation and last year's massive insider selling as reasons to avoid this stock.
Following Strayer out the door are VMware and Travelers. CAPS members weren't quite as negative on these two, but their three-star ratings are a big yellow light when considering an investment in either.
US Steel found itself right on the cusp of this week's top spot. Despite an uncertain near-term outlook, members liked the stock's dividend, as well as the potential for rebounding commodity prices and a boost from the U.S. government's stimulus spending.
That leaves us with Activision Blizzard as this week's top dog, with a perfect five-star rating. I could say plenty about the greatness of Guitar Hero, or the potential for consumers to embrace video games as a less expensive, more convenient form of entertainment. Instead, let's see what CAPS All-Star Alex1963 had to say earlier this month:
Great management stats and per employee productivity and just outstanding compared to industry. And having low to no debt is a critical parameter for me right now. I like gaming as an investment and think that they worse things are in general the better gaming and escape/fun will be. Especially since it's at home and represents a pretty cheap way to unwind ... I like these guys, [Electronic Arts] and [GigaMedia].
Now go vote!
Do you think Activision Blizzard 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.
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