5 More Unloved Growth Stocks

Ah, skepticism, how I love thee.

We rebel investors at Motley Fool Rule Breakers believe that the multibaggers in the making, while not often cheap by the numbers, are always misunderstood. As such, they face extraordinary skepticism. That skepticism, in turn, makes them excellent value stocks.

More are out there. Each week, right here in this column, we'll hunt them down. Grab your keyboard.

What one stock can do for you
Really, it's worth your time. One home run stock can make all the difference to your portfolio.

Just ask David Gardner, captain of the good pirate ship Rule Breakers, who bought Amazon at a split-adjusted price of $3.24 a share in 1997. He's up more than 2,700% since.

That helped him to overcome stinging losses from Guitar Center, 3Dfx, and others to put up nine years of better than 20% average annual returns as the leader of the real-money Rule Breaker portfolio.

Let the haters be your friends
Today, 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 5,300 stocks.

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

Let's have the list
Here are today's unloved growth stocks.

Bear in mind that this isn't a list of recommendations. Instead, I offer these stocks as candidates for further research.

Fools who frequent my writings know of my fondness for TiVo and its rich portfolio of patents. I'm convinced that the DVR pioneer will be victorious in its tussle with EchoStar (NASDAQ:DISH) and that when it is, the full value of its assets will be realized.

DivX also intrigues me with its 0.84 PEG ratio. Trouble is, the co-founder of the company just resigned from the board. And the bears on CAPS point out -- fairly, I think -- that digital media standards not unlike what DivX provides can be found everywhere. There may not be much of a moat around this suddenly short-staffed business.

A great rate, every day
You might make a similar argument about Bankrate. Seriously, where's the moat in providing financial information? Community sets us Fools apart from others, but Bankrate can make no such claim. How in the world is this a two-time Rule Breakers pick?

Let's ask David. Here's an excerpt from his write-up in the September 2006 issue:

When I first recommended Bankrate, it was already getting the vast majority of its revenue through ads, click-through links, and branded partnerships. After Tom Evans became CEO in 2004, the company restructured hyperlink ad deals from a flat fee to a pay-per-click model. Bankrate reported $12.4 million in revenue for the quarter that ended Sept. 30, 2005. Its revenue model changed in the middle of the next quarter, so we would expect to see only a modest effect, and that's what emerged: Revenues climbed to $13.9 million, up 12% sequentially, for the period that ended in December 2005. And then? Revenues climbed 42% sequentially to $19.8 million by March 31, 2006. I'd call that pretty successful.

So, apparently, would a number of very smart investors. Championship stock pickers John Montgomery of Bridgeway Ultra-Small Company Market and John Laporte of T. Rowe Price New Horizons (PRNHX) have bought enough for their funds to be among the top mutual fund owners of Bankrate's stock.

What about you? Would you buy Bankrate at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

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