5 Unloved Growth Stocks

Want a surprise? There's not much difference between us rebel investors at Motley Fool Rule Breakers and our cheapskate cousins at Inside Value. We both seek to profit from mispriced stocks.

The key difference is that while Philip Durell and his bargain bunch have no problem buying into pessimism, we rebels prefer to buy into skepticism. That is, we believe the multibaggers in the making, while not often cheap by the numbers, are always misunderstood. That's what makes them excellent value stocks.

Anatomy of a multibagger
Think of NYSE Euronext (NYSE:NYX), which David Gardner picked in February 2005, when it was still the highly disruptive Archipelago Holdings, owner of an electronic stock exchange that was steadily gaining ground.

It was anything but an obvious pick. Archipelago, after all, wasn't a fast mover at that point. Revenue growth had temporarily gone flat by the time of the recommendation.

Most investors overreacted to that blip. Some even bet against Archipelago by going short. Not David. He remained focused on the superior economics of electronic trading, figuring it would become a multibillion-dollar business so long as investors continued to put money into stocks.

Months later, the New York Stock Exchange bid $400 million for Archipelago. And today, the stock is a four-bagger for Rule Breakers subscribers.

Let the haters be your friends
That's why David and his team still seek misunderstood growers. You can, too, with the help of our completely free-of-charge Motley Fool CAPS investor-intelligence database, which currently contains information on more than 4,600 stocks.

CAPS applies user input to rate stocks from one (low) to five (high) stars. Using CAPS, we're going to search for one- and two-star stocks that have at least 5% of their shares outstanding sold short but are expected to grow earnings by no less than 15% over each of the next five years.

Let's have the list
Now, with that preamble behind us, here are five unloved growth stocks:

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 ICU Medical, which produces intravenous devices meant to protect health-care workers from disease, that interests me the most. CAPS All-Star tmd6966 explains the thesis:

New product launches, extremely efficient [manufacturing] process. Cost-cutting measures will begin to expand operating margins, new products will have similar effect, sitting on [more than $8] cash per share for possible acquisitions.

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. Get started now; the service is 100% free.

See you back here next week for five more unloved growth stocks.

NYSE Euronext is a Rule Breakers recommendation.

Fool contributor Tim Beyers, who is ranked 4,227 out of more than 29,800 rated players 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 article at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on growth stocks, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy is your portfolio's competitive advantage.