3 Great Growth-Investing Stocks

It's hard to argue against growth investing, where you focus on companies that are growing at a brisk pace. Sure, value investing is effective -- buying undervalued stocks that have nowhere to go but up. But you might get the best of both worlds by combining the two strategies, seeking companies that are growing rapidly and also sport compelling valuations.

Here are three stocks that a growth-investing enthusiast should consider.

Baidu Inc is a China-based search-engine giant, with revenue and earnings per share growing by an annual average of 56% and 44%, respectively, over the past three years. It does face able competition, but its size gives it an advantage, as it's able to reinvest lots of earnings in growing its top line. That strategy has been working, as the company is now profitable, unlike many other growth-investing stars. Baidu's first-quarter results featured earnings topping expectations and revenue meeting them. Revenue was up a hefty 59% over year-ago levels, while net income rose 24%. Many China-based stocks have been pressured as China's growth rate has slowed, but the long-term potential in China remains of great interest to growth investing aficionados as the populous nation's middle class grows and consumes more. Growth in online users has been particularly brisk. Early this year it was reported that China now has more than 600 million Internet users, up almost 10% in one year. Meanwhile, Baidu is gaining ground in the important mobile arena, and is reportedly talking with Chinese travel-booking specialist Ctrip.com about some joint operations.

With a P/E ratio around 32, Baidu's valuation is nowhere near nosebleed levels. Its stock is up about 57% over the past year and has averaged annual gains of 45% over the past five. Its net margins are near nosebleed levels, topping 30%.

Catamaran Corp is another candidate for those drawn to growth investing. It isn't a familiar name to many people, but it's not a tiny enterprise. The pharmacy benefit manager (and health care information technology specialist) sports a market capitalization near $9 billion, and its revenue and EPS have been growing by an annual average of 70% and 28%, respectively, over the past three years. It's attractively priced, too, with a forward price-to-earnings ratio near 15 -- well below its five-year average of 43 -- and a current P/E near 32. Catamaran is poised to benefit from millions more people having health insurance via Obamacare, as that's likely to result in millions of new prescriptions. Catamaran's first quarter was a growth-investing dream. Results featured estimate-topping revenue and earnings that rose 53% and 16%, respectively, over year-ago levels. Cash flow from operations more than doubled. The company bought competitor Restat last year. In a presentation for investors, Catamaran cites growth drivers such as the aging population, increased drug utilization, drug price inflation, and a brisk growth rate for Medicaid spending.

Silicom Ltd , based in Israel, specializes in networking and data infrastructure equipment. Its revenue and EPS have been growing by an annual average of 28% and 33%, respectively, over the past three years. Its last quarter's results beat estimates handily, but the stock sank for reasons (such as a tax-rate increase) not quite fathomed by my colleague Wade Michels, who said, "This business is too good and the management team is too focused for this business to stay this cheap for long. The market's reaction to earnings has presented us with a nice buying opportunity." Silicom's offerings include a new virtualization offloading product, the SmartSilc VHIO, which can make cloud computing more efficient. Among other things, bulls like the company's rising net margins and its deepening relationship with Intel. Those interested in growth investing should find Silicom attractively priced, too, with a forward price-to-earnings (P/E) ratio near 16, well below its five-year average of 18. The stock offers a dividend yield of 2.2%.

If you want to give your portfolio a good chance of growing briskly, take some time to learn more about growth investing. Just be sure to pair your growth investing with attention to stock valuation.

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The article 3 Great Growth-Investing Stocks originally appeared on Fool.com.

Longtime Fool specialistSelena Maranjian, whom you can follow on Twitter, owns shares of Baidu, Ctrip.com International, and Intel. The Motley Fool recommends Baidu, Catamaran, Ctrip.com International, and Intel. The Motley Fool owns shares of Baidu, Catamaran, and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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