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 find very few companies that can't increase their earnings and yet still produce 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 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.
NM = not meaningful.

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?
Not only has Chico's FAS been stuck with a lousy two-star CAPS rating, but the stock was also recently added to Goldman Sachs' conviction sell list. Ouch!

So what gives? The company is in the midst of a turnaround, and the big question is how much juice is left in that turnaround. Obviously, neither Goldman nor many CAPS members think there's much more to look forward to. However, there might be reason to keep an eye on this one anyway -- the numbers from the recent quarter looked much better than last year, and the company has a debt-free balance sheet with close to $500 million in cash, equivalents, and short-term investments.

As for STEC, I find myself in agreement with the CAPS community's lukewarm assessment. The companies in the digital storage industry have a tendency to beat each other to a pulp, and the cyclicality of the industry only intensifies the bloodbath. Though STEC seems to have made a prescient move to enterprise-focused solid-state drives, the stock doesn't jump out as a particularly compelling opportunity within its own industry, let alone among the vast sea of other stocks.

Despite the encouraging CAPS ratings, I have a tough time getting on board with Tellabs or NorthStar Realty. Tellabs just reported a nice quarter, bolstered by rebounding capital spending in the telecom industry. However, the company is competitively outmatched in its industry, and the stock's valuation isn't compelling enough to make up for that.

NorthStar Realty, meanwhile, operates in commercial real estate lending. "Yuck" is probably the best word for that industry, and NorthStar's recent losses attest to that. There is a speculative opportunity here thanks to the stock's rock-bottom 0.2 price-to-book multiple. But the underlying business doesn't exactly tickle my fancy, and I have serious misgivings about the future of the company's payout.

Bringing the heat
Frankly, I'm not particularly keen on investing in gold -- whether it's the metal itself or the companies that produce it. However, the metal has been blazing hot in recent years, and the elevated price means big money for producers. While my lack of interest in the yellow stuff hasn't made me an expert, my fellow Fool Christopher Barker covers the market like white on rice. And guess what? Northgate Minerals is one of his favorite picks.

Opportunity and competition go hand in hand for Shanda Games. The company operates an online game company in China -- which we all know is the new land of opportunity. For all the millions upon millions of potential gamers in China, though, Shanda has to tangle with a gaggle of other online games companies, each looking to release the next blockbuster game that will have gamers flocking to sign up. To compensate for that competition, though, investors do have some cushion against slower-than-expected growth in Shanda's single-digit earnings multiple.

It can be tough to carve out a competitive edge in the consulting and engineering world, but it helps if you focus on a specific niche. For Tetra Tech it's even better since it has latched on to a few particularly interesting niches -- water, environmental services, and renewable energy. Revenue and earnings were down in the company's March quarter, but a slight increase in backlog was an encouraging sign. The price tag on Tetra's stock could probably be labeled "fair" right now -- investors looking for a bargain probably want to see it come down a bit more.

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.

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