Wagering on ThinkEquity’s West Coast Offense

Growth stock investing is back into vogue, good news for those purveyors of sexy stocks. Growth stock adherents have spent the better part of the decade in Wall Street's woodshed, but they are once again lighting up the scoreboard.

It is considered a bit plebeian by value folks, who like to spend time ripping apart balance sheets and grilling management teams. Growth stock investing is different, and can be as simple as jamming the pedal to the metal:

Our school of investing - at risk of being thought to be a naive - is to identify, research and invest in the companies that we think will grow their earnings at the highest rate for the longest time. The reason for this is that we believe, based on our analysis, that earnings growth and stock performance are highly correlated over time and stock price and P/E multiple aren't.

As we wrote about it in last week's ThinkThoughts, the 25 companies that had the best performance out of over 10,000 had a P/E multiple of over 40x at the beginning of the period of outperformance. What offset the high P/E was the high EPS growth - over 40% on average as well. Think Blog

The world has been sliced and diced with indices and ETF's, and even Barron's recently rolled out their 400 Index. Michael Moe and his fast money crew are pumped up after hosting their annual conference in San Francisco, and have a put together a list of their own. Forget about three yards and a cloud of dust, these stocks are on fire and have been leading the recent charge.

1) GOOG
2) AAPL
3) BIDU
4) CRM
5) ISRG
6) CMG
7) AMZN
8) RIMM
9) BCSI
10) GILD

Others receiving votes: Blue Nile (NASDAQ: NILE, $94.12, Accumulate - Price Target: $100), NuVasive (NASDAQ: NUVA, $35.93, Buy - Price Target: $38), Genentech (NYSE: DNA, $78.02 - Not Rated), ITT Education (NYSE: ESI, $121.69, Accumulate - Price Target: $119), priceline.com (NASDAQ: PCLN, $88.75 - Not Rated), VMware (NYSE: VMW, $85.00, Source of Funds - Price Target: $60), and as already mentioned Salesforce.com (NYSE: CRM, $51.32, Buy - Price Target: $55). Undoubtedly, we’ll be wrong on some of these and we’ll update our power rankings accordingly.

Are the planets aligned for this move to continue into the end of the year? It is starting to smell like 1999 in many sectors of the market, and if the folks at shops like Janus and Putnam begin to get inflows the move could continue well into next year. The resurgence of growth stock investing is not likely to be a two or three quarter phenomenon, but will evenutally lead to another hangover. Many of the stocks are trading at a premium to their growth rates also, which might give some investors pause, although upside earnings surprises would keep the game going longer than you think.

Everyone wants to be the last one to leave the party. This one could go on for a while, just be careful not to overstay your welcome.

In growth stock land, the world spins a little faster. But it is long overdue.

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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Positions.

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