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Are you really a growth investor?
It's worth asking. Fast-moving tech stocks have taken a beating recently, leading to a slew of bargains for people with the guts to buy.
No surprises there. Market panics occur daily. Just ask investors who hold shares of Orthovita (VITA, news, msgs), which on Aug. 20 fell nearly 5% on no news whatsoever. Sheesh.
That's why all-star investors bet on growth over the very long term. They know:
- Businesses that make investors billions always begin as growth stocks.
- The best growth stocks feature massive and identifiable competitive advantages.
- Growth as a strategy has the capacity to deliver annual returns of 20% or more for decades at a time.
Of course, not any growth stock will do. We're looking for stocks that have earned the maximum five-star rating from the MSN CAPS investment community and are forecast by analysts who cover the companies to grow their earnings by at least 20% a year over the next five years.
- MSN CAPS: Collective wisdom at work
Five-star stocks are those that the community, on the whole, believes will outperform the Standard & Poor's 500 Index ($INX).
Now, with that preamble behind us, let's examine five top growth stocks. Bear in mind that this isn't a list of recommendations. Instead, these companies are offered as candidates for further research.
| Company | Sector | Number of CAPS ratings | Percent of bullish ratings | 5-year growth estimate |
|---|---|---|---|---|
Photovoltaic cells | 3,778 | 97 | 37% | |
Farm and construction machinery | 1,171 | 98 | 32% | |
Oil and natural gas | 616 | 98 | 27% | |
Information technology | 798 | 97 | 26% | |
Oil-field equipment and services | 476 | 98 | 22% |
We've got some great companies to work with, including Cognizant Technology Solutions (CTSH, news, msgs), which has been an aggressive buyer of its own shares, and Manitowoc (MTW, news, msgs), which just shipped out its smallest and least profitable business.
More from MSN Money and The Motley Fool
"Suntech . . . has dropped about 19% since last month, largely on concerns about solar panel sales in Spain," wrote Karl Thiel of The Motley Fool recently. "That's one of Suntech's major markets, and the Spanish government has discussed reducing subsidies in 2009. That's unlikely to happen, but the company has the backlog to make up for the loss even if it does."
And Suntech's numbers look good. The stock trades at 28 times forward earnings; return on equity is rising and now stands at 24.76. But don't take my word for it: The market thumpers at Vanguard Explorer (VEXPX) have been buying shares recently.
So has "TMFSinchiruna." The CAPS All-Star recently wrote: "I might be in the red on this one for a while, but this is a great company in a sector that makes just too much sense in a rising oil-price environment. I believe solar will be a big part of the planet's solution to its energy woes, and China is the most de-coupled of all foreign economies. . . . so I'm staying with (Suntech) for the long haul!!"
Video on MSN Money
Growth prospects, bargain pricesGreg Zuckerman of The Wall Street Journal runs a stock screen to find companies that look cheap considering their growth potential. One surprising find: Occidental Petroleum.
This article was reported and written by Tim Beyers for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.
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