Regardless of what you think of him, his newsletters, or his track record, Louis Navellier has in many ways become the face of growth investing. He's frequently on CNBC and other financial news shows talking tech and high-growth opportunities, usually with a bullish bent.

This, after all, is the man who wrote The Little Book That Makes You Rich, an overview of the eight numerical criteria Navellier uses to select outstanding growth stocks -- a formula that, according the book and the performance page for his company's newsletters, has helped him achieve a life of remarkable wealth.

Magic 8-Ball says, "Don't count on it."
Despite all that, a Bloomberg analysis of real-money moves made by his Reno, Nevada firm shows that Navellier is turning tail on some of tech's best-known growth names:


Market Value*

Current Position (Shares Owned)

Change In Position (Shares Bought/Sold)

Chipotle Mexican Grill $74,361,008 241,283 (9,219)
Baidu (Nasdaq: BIDU) $68,603,164 489,568 (21,043) (NYSE: CRM) $68,437,390 459,373 (16,643)
AutoZone $65,894,847 223,486 (8,770)
IBM (NYSE: IBM) $64,394,037 375,366 (7,988)
Cognizant Technology Solutions (Nasdaq: CTSH) $61,097,060 833,066 (38,186)
Estee Lauder Companies $60,436,599 574,547 (20,377)
F5 Networks (Nasdaq: FFIV) $56,228,933 510,013 (18,129)
Citrix Systems (Nasdaq: CTXS) $56,123,200 701,540 (29,196)
Family Dollar Stores $55,919,425 1,063,916 (45,354)

Source: Bloomberg. *As of the date of this report: Aug. 5, 2011.

Should tech investors be concerned? I don't think so. Navellier never claims to be a market timer in The Little Book That Makes You Rich. Rather, his key principles are either based on or derived from fundamental measures of earnings quality. He's looking for earnings revisions, accelerating revenue and profit growth, strong cash flow, high returns on equity, and related metrics.

He also watches for a history of positive earnings surprises, an approach my Motley Fool Rule Breakers colleague Rick Munarriz also espouses, on the theory that surprising growth will drive Big Money interest and corresponding stock gains.

Pay attention to this metric
Momentum matters, no doubt. Yet I tend to pay closer attention to metrics that demonstrate management competence, such as return on capital. ROC measures how effectively executives deploy debt and equity in generating growth.

Why does it matter? Accelerating gains in ROC typically reflect higher operating margins and thereby higher operating income, cash flow, and (of course) stock returns. Just ask Rackspace Hosting (NYSE: RAX) shareholders -- they've enjoyed about a double over the past year as returns on capital widened from 10.9% to 14.4%.

Of Navellier's top 10 sales, only Chipotle and have suffered year-over-year declines in ROC in recent quarters. IBM reversed declines three quarters ago and hasn't looked back since. Cognizant Technology Solutions started a trend of its own two quarters ago, while Baidu has grown ROC as consistently as revenue and now earns more than $0.43 on every dollar of capital it deploys. I dare you to name a tech company that's performed better.

The Foolish bottom line
So while I can appreciate Navellier's approach and history, I'm not buying his sales. In particular, I think now is an awful time to sell Baidu -- and not just because of its rising ROC. There are whole host of other reasons, as Motley Fool Global Gains co-advisor and one-time Baidu skeptic Tim Hanson explains here.

In fact, there isn't a single tech stock on this list I'd sell right now. The same goes for Chipotle, which we own in my wife's IRA. There's either too much growth opportunity left (e.g.,, F5) or too much of a track record (e.g., IBM, Baidu, Citrix) to sell when Mr. Market is bingeing on crazy like he is now.

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