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 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 145,000-member Motley Fool CAPS community thinks 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. I'll even get you started with some thoughts on a couple of these stocks.

Cool to the touch?
There should have been a lot to cheer about when American Express reported fourth-quarter results. Not only did the company nearly triple its net income from the fourth quarter of 2008, but the results also topped analysts' expectations.

Yet there was no cheering. In fact, the day after AmEx released its numbers, the market kicked its stock around, leaving it bruised, battered, and down more than 8% by the time the market closed on Friday. Apparently, investors continue to be concerned about the near-term prospects of credit card companies in light of the still-struggling consumer.

On CAPS, American Express' stock has received a lukewarm reception, carrying a middle-of-the-road three-star rating. CAPS member DarthMaul09 got bearish on AmEx back in October and had this to say:

This company has had a nice rise in price over the last three months, although its price has been somewhat flat recently. Even though it built its business on the high net worth/high income credit card holder, it has diversified its business to a broader market. This diversification many have been ill timed as higher unemployment, higher taxes and depressed wage growth will likely increase the late payments and credit card defaults.

Bringing the heat
But what about high growth and a high rating from the CAPS community? For that we can turn to McDermott International.

Last February, CAPS All-Star directd ignored the market's panic and gave McDermott's stock a thumbs-up, saying:

At 4 times earnings this looks like an absolute steal. Global stimulus packages amounting to trillions of dollars much of which will be spent on infrustructure and energy will benefit this industry overall. There is absolutely no evidence of projects being canceled and if anything I expect projects and backlogs to go up as massive gov. stimulus efforts and a slow economic recovery appear far more likely than the Argmaggedon the alarmists are speaking of.

As we know now, Armageddon never arrived, and McDermott's stock has more than doubled from where directd made that call.

Here we are, more than 100% later, with a new question: Is McDermott still a good bet? The CAPS community seems to think so. The stock has nearly 1,300 outperform ratings versus just 31 underperforms.

It's hard to fault the optimism. Even after the stock's bull run, it's still trading at around 12 times expected 2010 earnings, a price that is a heck of a lot more attractive than the price on the S&P 500 index as a whole. And this could be a particularly interesting time to consider becoming a shareholder, as the company plans to split in two during 2010.

In an effort to better position its Babcock & Wilcox subsidiary -- which handles highly specialized nuclear projects -- for government contracts, the company is spinning off that unit and renaming the rest of the company J. Ray McDermott. The business that will be known as J. Ray is the very attractive global construction group that has been thriving on activity in the oil and gas industry.

Investors who own McDermott at the time of the split will end up with shares of two very attractive businesses that will suddenly become much more focused on their specialized markets.

But what do you think?
Do these stocks have what it takes to post solid growth in this economy? Or have analysts been too optimistic? More than 145,000 members of the free CAPS community are sharing their opinions on thousands of stocks. Head over to CAPS and let the community know what you think of American Express, McDermott, or any of the other stocks listed above.

I'm concerned that the U.S. dollar could be in for a rough ride. But rather than pull my hair out, I've been thinking of ways to profit from the decline.