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 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 |
3-Year |
Price-to-Earnings Ratio |
CAPS Rating
|
|---|---|---|---|
|
WMS Industries |
32% |
26.2 |
** |
|
Express Scripts |
25% |
28.8 |
*** |
|
Goldcorp |
24% |
25.6 |
*** |
|
Hasbro |
17% |
16.0 |
***** |
|
IBM |
16% |
13.5 |
**** |
Sources: Yahoo! Finance; CAPS as of Dec. 23.
Growth without good looks
Fans of major gaming companies like MGM
While WMS Industries doesn't own any casinos, it designs and sells the gaming machines that populate the noisy floors of most casinos. Competing against industry giant International Game Technology, WMS has proven its mettle over the last few years by notching some impressive growth, even during the recession. However, the stock's current valuation, combined with the pall over the gaming industry, seems to be too much for CAPS members to stomach.
If you're looking for a great industry to invest in, pharmacy benefits management might find its way to the top of your list. With so much focus on making the health-care system more efficient, companies such as Express Scripts and competitors CVS Caremark
While valuation was the concern with the previous two stocks -- and could be with Goldcorp -- some CAPS members have started to get concerned about the fundamentals of Goldcorp's primary product, gold. Gold has had quite a run, thanks largely to the financial crisis and concerns over the U.S. dollar, but many now think the price increase has run its course.
Strutting their stuff
While the stocks above haven't been able to inspire CAPS members, good ol' IBM has. We could knock IBM by saying that it's an age-old company and already huge ($173.1 billion huge, to be exact), but smart moves over the past decade have made the company much more interesting from a growth investor's standpoint.
Specifically, IBM has been ditching its lower-margin businesses, such as personal computing, in favor of more profitable areas like consulting and software. While this hasn't done much for IBM's top line, its operating margin has gone from 13.1% in 2005 to 19.3% over the past 12 months.
And while the safety and growth potential at IBM have been winning over many CAPS investors, it couldn't quite top this week's top growth stock, Hasbro. In the battle between two long-lived companies, Hasbro's 1,257 outperform ratings and perfect five-star rating put it in the top spot.
So what makes the Motley Fool Stock Advisor recommendation such a popular pick? CAPS member jmo72 recently outlined a bull case for the stock:
[Hasbro] is one of those investments that will truly last a lifetime. This company is going to still be making toys when I am chasing my grandkids around. The power of the brand will always attract and demand good management. The Hub should add a lot of value to the company going forward. The yield makes it a prime stock to add in "dribs and drabs" and hold forever.
Now go vote!
Do you think Hasbro 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.
Had enough of growth investing? Check out what fellow Fool Jordan DiPietro has to say about value investing in a modern age.
