America's Next Top Growth Stock

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 170,000 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.

Source: Yahoo! Finance, Capital IQ, a Standard and Poor's company, and CAPS as of December 30.

Growth without good looks
Though it may not be as sexy as virtualization, data storage is one of the hot areas in technology. With the amount of data that both consumers and businesses work with continuing to grow by leaps and bounds, there's an ongoing need for more room to store it. For most investors, EMC (NYSE: EMC) is likely the name that jumps to mind when it comes to storage -- particularly in the enterprise segment -- but its smaller rival NetApp has had no problem going toe-to-toe with it.

While the trailing growth for NetApp has been good, analysts see even better times ahead -- current estimates show the company growing at an annual rate of 24%. But CAPS members haven't been quite so positive. After a huge run in 2010, NetApp's shares currently change hands at 28 times expected earnings for its 2011 fiscal year -- a price that many CAPSers think is just too hot to handle.

While CAPS members aren't quite as pessimistic on Hudson City Bancorp or UPS, they're not overly positive on them either. I'm not against investing in banks, in fact, I recently highlighted both Cullen/Frost Bankers and M&T Bank (NYSE: MTB) as two banks that I like for the year ahead. Hudson City, however, hasn't been a favorite of mine. Its bottom line held up quite well while other banks were struggling, but its nonperforming loans have continued to rise. I don't think the bank is in any serious trouble, but I could certainly see it just shuffling along for a while.

As for UPS, it's hard not to like the company -- it's a solid business with global exposure, good cash flow, and impressive returns on both capital and equity. But trading at more than 17 times estimated earnings per share in 2011, there doesn't seem to be a pressing reason to rush to pick up shares.

Strutting their stuff
While the stocks above haven't been able to sufficiently inspire CAPS members, InterDigital has.

The case for InterDigital has been pretty straightforward. The company's revenue and profit have grown substantially and expectations are high that considerable growth is still ahead. At the same time, the company holds an impressive amount of cash on its balance sheet -- almost $13 per share to be more precise.

And the price for all of this? Less than 14 times expected 2011 earnings per share. No wonder my fellow Fool Anders Bylund said that this stock rocks.

But while CAPS members are pretty fond of InterDigital, it just didn't have what it takes to top this week's top growth stock, Atwood Oceanics.

If you're an offshore oil driller, it's been tough to get much love from investors since BP's disaster in the Gulf of Mexico. CAPS members have seen this as an opportunity when it comes to Atwood, a driller trading at nine times expected fiscal 2011 earnings and pegged to grow at 15% per year over the next five years. And, as CAPS member Gordogato pointed out a few months ago, the company doesn't even have much exposure to drilling in the U.S.

ATW is currently unfairly beaten down along with other oil & offshore drilling companies because of the BP disaster and prospects of increased regulation on gulf operations, despite the fact that ATW has only small exposure to drilling in US waters (only 1 rig). Most drilling activity is overseas and will not be affected. ATW should bounce back.

Now go vote!
Do you think that Atwood Oceanics 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.

Looking for even more growth? My fellow Fools have identified a stock that they think will benefit from the "new technology revolution." Find out what that stock is by clicking here and entering your email address.