5 Stocks Geared for Growth

A stock's price follows its earnings, which in turn follow its sales. A company needs only to take care of its business for investors to profit in the long run.

With that in mind, examining companies whose revenues and profits are rising -- and which inspire analysts' confidence in continued future growth -- should give us a fertile field in which to discover solid candidates for long-term outperformance.

Below are a handful of companies that have enjoyed 15% or more for both annual growth in sales and earnings over the past three years, and for which analysts forecast total growth of 15% or more over the next two years. We'll then pair up those predictions with the community stock research at Motley Fool CAPS to get an idea of which companies the 150,000-plus members think have the best chances of beating the market over the long haul.

Source: Capital IQ, a division of Standard & Poor's; Motley Fool CAPS.

Just because an analyst predicts that a company will feature fantastic growth opportunities doesn't mean those predictions will become reality. But their preferred picks do offer an excellent starting place for your own research into extreme buying opportunities, so let's see why the operations of some of these companies may or may not be held in high esteem by investors considering they appear to be sales and profits machines.

Grinding down the competition
While Oracle (NASDAQ:ORCL) CEO Larry Ellison has criticized "cloud computing" as having been hijacked to include just about anything that occurs on the Internet these days, the virtualization technology that VMWare brings to market is proving highly successful. It was able to post a 58% increase in net profits, marking its return to earnings growth for the first time in six quarters.

Highly rated CAPS All-Star member FreeMortal says we've only seen the tip of the iceberg when it comes to cloud computing, and VMWare will account for the vast bulk of the ice floe to still emerge:

Cloud computing has barely penetrated the market yet. VMware is at the forefront with an excellent line of products and a large share of a rapidly growing market. Steadily growing earnings. PE on downward trend.

Although Microsoft is making inroads on virtualization and clouds, their licensing scheme is still batty. With the decline of the role of the PC in IT infrastructure, IT managers are looking for an excuse to escape the MS treadmill.

The CAPS community would seem to agree, with 92% of the more than 1,800 members rating the company marking it for outperformance. You can add your opinion on the VMWare CAPS page and let us know whether it's on a firm financial footing or simply has its head in the clouds.

Says who
China's Internet media giant Sohu.com has had a rough go of it lately as advertising revenues faltered and online gaming revenues saw growth slow. In comparison, Chinese search engine Baidu.com (NASDAQ:BIDU) reported blowout numbers due to richly rewarding paid-search sponsorships. And if Google (NASDAQ:GOOG) does follow through on its threat to limit its presence in the country (though that seems more unlikely these days), Baidu could surge further.

CAPS remains supportive of Sohu however, as 95% see it still beating the market in the months ahead. StashStock was looking for Sohu to continue its revenue growth ways last December when he marked it to outperform while walt373 says even when he calculates zero growth, he finds it undervalued:

Everyone knows this company has grown nicely in the past, but you can't take it for granted in the future. So I pulled up my DCF spreadsheet and plugged these numbers in:

- 0% revenue growth to perpetuity

- margins remaining stable

- cap ex = depreciation

- 11.5% cost of equity

And I got that fair value for the stock = $58. I think revenues will continue growing in the future. (According to MF, Wall Street analysts project about 10% growth for 2010) If that is the case, this stock is undervalued.

No Great Depression
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Why not head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think we should fill up our dance card with?