You know talk of a growth stock rally is serious when The Wall Street Journal picks up the theme. That's what we have today. The Journal led the Sunday, April 5, edition with a banner headline proclaiming, "Odds Shifting in Growth Stocks' Favor."
Such talk usually finds me huddled in the basement downloading blueprints for a fallout shelter for my portfolio. But not this time. Why? There's more than just the usual chin-wag bluster at work in the Journal's thesis.
For example, T. Rowe Price asset allocation leader Ned Notzon told the Journal that while growth stocks typically trade at a premium to their value-driven peers, "right now, they are [trading] about as tight as ever." Or, in simpler terms: Growth is as cheap as value.
Nice, but that's a poor reason to invest in the market's fast movers. All-Star stock pickers go with growth over the long term because:
- Businesses that make investors billions always begin as growth stocks.
- The best of them feature massive and identifiable competitive advantages.
- Growth as a strategy has the capacity to deliver 20% or greater annual returns for decades at a time.
How we do it
Of course, not all growth stocks will do. Our weekly hunt is for the next great multibagger. But unlike David Gardner and his team at Motley Fool Rule Breakers, who scour everything from financial statements to trade magazines to clinical reports in their research, we're going to rely on our Motley Fool CAPS investor intelligence database.
Specifically, we're looking for stocks that have earned a five-star rating in CAPS and which are expected to grow their earnings by at least 20% annually over the next five years. Five-star stocks are those that the community, on the whole, believes will outperform the S&P 500.
Let's have the list
Now, with that preamble behind us, here are five more top growth stocks:
|
Company |
No. of CAPS Ratings |
Bullish CAPS Ratings |
5-Year Growth Est. |
|---|---|---|---|
|
BPZ Energy |
41 |
39 |
50.0% |
|
IPG Photonics |
67 |
62 |
30.0% |
|
Double-Take Software |
22 |
22 |
25.0% |
|
First Marblehead |
1,183 |
1,150 |
23.6% |
|
Systems Xcellence |
32 |
30 |
20.0% |
Bear in mind that this isn't a list of recommendations. Instead, I offer these stocks as candidates for further research. But of these five, it's student loan specialist First Marblehead that interests me most. I'll let CAPS All-Star capitalist101 explain the thesis:
First Marblehead has a large moat around the student loan processing and securitization biz that gives them outstanding margins in a high growth market ... Company can grow [without] capital and in a few years will actually have capital inflows from the payment of residuals on the securitizations. Company is buying back shares with excess cash.
Intrigued? Do your own due diligence and then check in with thousands of other investors at CAPS. And, if you'd like, add your own commentary. You'll be helping your fellow Fools and testing your ideas at the same time. Click here to get started now; the service is 100% free.
See you back here next week for five more top growth stocks.
Fool contributor Tim Beyers, who is ranked 2,351 out of more than 27,000 in CAPS, is a sucker for growth stocks and a regular contributor to Rule Breakers. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on growth stocks, Foolishness, and investing in general may be found in his blog. First Marblehead is a Hidden Gems pick. The Motley Fool's disclosure policy is your portfolio's competitive advantage.
