Looking For Growth In All The Right Places

It's one of the hardest things an investor can do: Separate a bunch of idle chatter and white noise and zero in on the fundamentals that indicate a stock has a legitimate growth story behind it. For stock-pickers, the good news is that the market is rarely short of pretenders to growth throne. The bad news not every growth stock actually grows and few wind up being the next Amazon (AMZN) or Google (GOOG).

At their cores, true growth stocks belong to companies that are expected to post earnings growth that is above average compared to the broader market. So if ABC Inc. is a tech company and is growing its earnings at 25% per year while the rest of the tech universe is averaging 12% and the S&P 500 is showing EPS growth of 10%, then it's fair to assume ABC is a growth issue.

Obviously, ABC Inc. is a hypothetical company, so let's look at some of today's real growth stars, not all of which hail from the Internet or tech sectors.

Intuitive Surgical (ISRG):

As we said, not all growth stocks have to come from the tech sector, though it's fair to say Intuitive Surgical is high-tech in its approach to medical devices. Another hallmark of a growth company is that makes revolutionary products and Intuitive Surgical does that. That also indicates the company has a wide moat, or few legitimate competitors.

Since going public just over 12 years ago, Intuitive Surgical has seen its stock rise more than 3,100%. The stock currently trades at 34 times forward earnings, but its price/earnings growth rate is just over 2.1. Those are growth numbers, but they also say this stock is not too expensive.

LinkedIn (LNKD):

LinkedIn has only been public for 50 weeks and in that time, the stock has risen "just" 13.4%. The company operates in the social media space where stocks are either growth plays or dead money. There are simply no value plays in social media because the industry is not yet mature enough for that.

In the fourth quarter, LinkedIn's revenue more than doubled while operating income rose by more than 42%. Those are growth numbers as is the stocks forward P/E of almost 100. LinkedIn has a chance to validate its growth story on Thursday when it delivers first-quarter results.

Apple (AAPL):

Last week, the world's largest company by market value, told investors its fiscal second-quarter profit nearly doubled and that it sold 35.1 million iPhones and 11.8 million iPads during the quarter, increases of 88% and over 150%, respectively. Over the past decade or so, there has been no denying that Apple is a growth stock given the way its earnings and revenue have been rising, but on a valuation basis, the shares are cheap at less than 11 times forward earnings and a PEG ratio of just 0.75.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.