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 130,000 investors and is a great resource for separating the Hugh Jackmans 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 net profit per share by an average of 20% or more per year over the past three years. (Run the screen for yourself, if you like). Let's go ahead and meet our contestants.
Union Pacific
Does it seem strange to think of a railroad operator such as Union Pacific (NYSE:UNP) as a growth company? Well, this old boy has posted compounded earnings growth of 23% over the past three years as rising gas prices made rail more attractive and pushed up railroad pricing. Of course, even as pricing rose, tough economic conditions pushed down freight volume. Now that gas prices have fallen significantly, it may be tougher for Union Pacific and its ilk to continue with steaming growth.
Garmin
If you've lost your way searching for growth stocks, maybe Garmin (NASDAQ:GRMN) can help you get back on the right path. Though the company's ubiquitous GPS systems don't track down growth stocks, they have helped Garmin become quite a growth stock itself. Now, the recession has been none too kind to Garmin's bottom line, and falling margins helped drag down 2008 profit. Still, net income is up a compounded 29.8% over the past five years.
Goldcorp
Financial distress and the potential for inflation are like catnip to gold buyers. Many investors have flocked to the metal recently under the assumption that it is one of the few assets that will hold its value as the financial windstorm continues to whip everything else around. Such turbulence has been a major boon to Goldcorp (NYSE:GG), one of the largest gold producers in the world. Not only has the company benefitted from rising gold prices, but it has also expanded through acquisitions, such as its purchase of Gold Eagle Mines last year. Goldcorp increased earnings 220% in 2008.
Schlumberger
Whether we're talking about Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), or Transocean, oil services stocks have gotten spanked since last summer. And that shouldn't be much of a shocker since the price of oil, though well above its low, is still less than half its 2008 peak. But unless I missed the news flash that alternative energy sources are suddenly highly competitive with fossil fuels, then I'm betting that oil and gas companies will continue to tap Schlumberger to help them find and access new reserves.
Green Mountain Coffee
Every once in a while a company comes along and does something out of the blue to put some pizzazz in a relatively simple product. Starbucks (NASDAQ:SBUX) did that to coffee once, and Green Mountain Coffee Roasters (NASDAQ:GMCR) may have done it again. The company has come up with a nifty coffee maker that pumps out single-cup servings of gourmet coffee without the need to grind beans, break out a filter, or do much clean-up. In the five years ending with Green Mountain's 2008 fiscal year, revenue grew on average 34% annually, to just over $500 million.
The envelope please ...
The voting is in and CAPS community members have shared their opinions. Right off the bat, Green Mountain is getting booted from the island. While the growth at Green Mountain has been tasty, many CAPS members think the stock's price has begun to get bitter and have stuck it with a two-star rating (out of a possible five).
Garmin and Goldcorp will quickly follow on Green Mountain's heels. The three-star ratings that both stocks sport suggest that on the whole the community is less than excited about their prospects.
Union Pacific, on the other hand, has generated a bit more interest from the community, enough to garner it four stars. The perceived safety of rail transportation as a business, along with a price-to-earnings ratio of 10 has inspired a lot of thumbs-up for the railroader.
Although Union Pacific may have its draw, it wasn't able to derail the CAPS community's unwavering love of the oil and gas industry. Like many other energy stocks on CAPS, Schlumberger sports a perfect five-star rating and has garnered the support of more than 2,600 CAPS members.
So what's the big draw of Schlumberger's stock? Let's take a look at what CAPS All-Star fdude71 had to say back in March:
Best of breed company. P/E at 8.x its not going to get much lower than that. Yes oil prices are down, but 1) for how long? and 2)it will not impact SLB this much in the long run, it could actually help as they help companies getting the best of EXISTING fields, I actually think they will see an increase in reuse of their expertise. I'm in.
Now go vote!
Do you think that Schlumberger has what it takes to be America's next top growth stock? Head over to CAPS and let the rest of the community know what you think.
Related Foolishness:
