30 Top-Rated, Fast-Growth Stocks

BOSTON (The Street Ratings) -- Yesterday I wrote that stocks are cheap given the disconnect between stock yields and Treasuries. I provided a list of 20 top-yielding, top-rated companies that I would own, rather than a government bond that gives me only 2% a year.

Alas, those types of companies, such as Hershey ( HSY) and Colgate ( CL), might not be for everyone. Higher-quality companies (dividend-yielding, high return on equity) have outperformed the stock market this year, while high-beta companies have underperformed. Double-dip chatter, European contagion and other macro concerns have led investors to rein in the risk and opt for safer investments. (Hence, one reason Treasuries are where they are today.)

So while dividend-paying stocks are a good option, it makes sense to consider the possibilities. If investors assume more risk based on an increased level of confidence, higher-beta stocks will likely outperform. Another potential scenario is that economic conditions will deteriorate and put us into another recession. In that case, dividend-paying, safer companies would likely outperform. Whatever the case, it pays to diversify. If your entire portfolio consists of high-dividend stocks, be aware of the consequences.

Today I'm offering a more aggressive list of stocks. All are rated "buy" by TheStreet Ratings' quantitative equity model. In addition, I've looked for companies with above-average growth in revenue, earnings and EBIT; namely, greater than 25% over the past year. Also, the stocks must have positive quarter-over-quarter growth in earnings and revenue. And I've also mandated that each stock have a beta of greater than 1.

Consider these stocks to be more aggressive. I wouldn't consider these names to be speculative or uber-risky, so if you're looking for one or two stocks to help increase the beta exposure in your portfolio, these stocks would be a good start.

Some names you might expect are included in the mix -- Apple ( AAPL), Priceline ( PCLN), Green Mountain Coffee ( GMCR) and some you might not, such as Caterpillar ( CAT).

CAT has been a big beneficiary of infrastructure spending in emerging markets, yet has fallen due to concerns over slowing growth in Japan and China. S&P research forecasts $9.10 earnings per share in 2012, implying a forward P/E of just 9.75. The recent purchase of mining-equipment company Bucyrus has boosted profits, while synergies from the deal should lead to improved margins (based on cost savings). Our model has a $116 price target on shares of CAT, which implies the potential for 30% upside. And as a bonus, you'll also collect a nice dividend, currently 2.1%.

Sohu.com ( SOHU), one of China's leading Internet portals, has built an impressive array of gaming and leisure Web sites. According to Internet-tracking Web site Alexa, Sohu.com is the ninth most-visited site in China, six steps below rival Sina. The company has been able to grow revenue and earnings at a 30% clip over the past year, despite increasing competitive advertising pressures from the likes of Baidu ( BIDU), Sina ( SINA), Tencent and Alibaba. According to Bank of America Merrill Lynch research, shares of Sohu are worth $104 (30% upside), with the company's core portal business worth $56, and its 67% stake in gaming site Changyou ( CYOU) worth an additional $48.

VMWare ( VMW) is the undisputed king of virtualization services. In simple terms, virtualization allows companies to run more than one server on the same hardware. The company has been a huge benefactor of the move by IT departments to improve efficiency and cut costs. While revenue was up 40% over the past year, the stock seems to be priced for perfection, trading at nearly 44 times 2011 earnings estimates. JPMorgan analyst John DiFucci calls VMW a "compelling story," yet remains neutral on the stock due to valuation. DiFucci notes that "it's not difficult to ignore traditional valuation metrics when a company appears to have so much wind at its sails, but we'll wait this one out for now."

Portfolio Recovery Associates ( PRAA) outsources receivables-management-related services. The company buys charged-off debt for pennies on the dollar and tries to collect from consumers. Revenue grew 33% in 2010 and is expected to increase by 25% this year.

Purchase prices on debt have increased compared to what was seen in 2008 to 2010, yet are still below peak levels. Managment has noted that there are still many attractive buying opportunities in regard to debt, and has bought nearly $200 million in charged-off debt during the first half of 2011. Even with a struggling consumer, the company was able to increase the collections from bankrupt accounts by 56% in the second quarter. Based on 2011 estimates, the stock is trading at just 12 times earnings, and with projections for 20% growth to continue, the stock looks attractive.

Have any thoughts on this list? Feel free to comment here or message me on Twitter @bostoncfa

>>To see these stocks in action, visit the 30 Top-Rated, Fast-Growth Stocks portfolio on Stockpickr.

Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser. Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.

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