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 165,000 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: CAPS.
^Based on most recent financials released, period ending in September 2008.

Growth without good looks
We all know that Research In Motion is locked in an epic battle with Apple (Nasdaq: AAPL) and Google. After taking the budding smartphone market by storm, RIM's BlackBerry has since been slapped around a bit by Apple's iPhone and devices running on the Android platform. Not that RIM has taken it sitting down; it hopes the recent release of the Torch 9800 will help it dig back in.

Competition isn't RIM's only headache these days. The company's encryption policies have run afoul of foreign governments. Saudi Arabia has been twisting RIM's arm the hardest, threatening to block all BlackBerry services Friday if its demands aren't met. Others, including the United Arab Emirates and India, are doing plenty of saber-rattling of their own.

Put that all together, and it shouldn't be all that surprising that CAPS members have been down on this cell phone slinger.

While a one- or two-star rating from the CAPS community could be considered an investment red light -- that is, you should come to a full and complete stop before investing in one of those stocks -- a three-star rating is more of a flashing yellow. While there is a good amount of pessimism on three-star stocks, they tend to have a good fan base.

Such has been the fate of UPS and China Automotive. CAPS members concerned about the economy think UPS will continue to see its fortunes improve, but a considerable number of detractors think UPS' union workforce will be the company's downfall. Turning to China Automotive, fear of heights has been dragging down the stock's CAPS rating. Back in late 2008, the stock was changing hands at around $2 per share. Today, it sells for 10 times that, and many CAPS members seem to think the stock needs a cooling-off period.

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

Before Satyam detractors try to lop my head off, I know that I may have been way too flexible in letting the stock slide onto this list. Back in early 2009 it was revealed that the company was engaging in massive fraud by inflating its earnings and assets over a period of years, and it hasn't released a new set of financials since. Not only does that mean we don't know how the company has been faring lately, but we also don't really know whether the growth above is even real.

So why would you even consider going with this mangled story when you could go with untarnished Wipro (NYSE: WIT) or Infosys? In a word, valuation. Satyam's stock is still well below its prescandal levels and CAPS members seem to think that when the light of day hits the company's books again it will show the stock is attractively undervalued.

Satyam recently got an extension on shedding light on its performance over the past two years, but it seems like the market should get a good look no later than Sept. 30.

But while Satyam may have piqued CAPS members' interest, it couldn't quite top the zing of China-based Zhongpin.

The name Zhongpin may not ring any bells, but the ticker, HOGS, says a lot about Zhongpin's business. The company is a branded seller of pork and other food products in China and has a customer base that, at the end of 2009, included thousands of retail outlets and supermarkets, 27 fast-food companies, 49 processing factories, and nearly 1,700 cafeterias.

In its filings, Zhongpin points out that China is the world's largest market for pork, claiming an amazing 49% of total global share. At the same time, it's a market undergoing change, as hygiene concerns have led the government to encourage movement away from open-air markets toward supermarkets and convenience stores, which is where Chinese consumers might find Zhongpin products.

Combine China's growth and modernization with Zhongpin's low trailing and forward earnings multiples and you just might find yourself agreeing with the CAPS community's five-star rating.

Now go vote!
Do you think Zhongpin has what it takes to be the next top growth stock? Head over to CAPS and let the rest of the community know what you think.

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