Our picks pay off
The seven stocks we recommended from last year's list have together beaten the S&P 500. What should investors do now?

(FORTUNE Magazine) – After 14 years of compiling our list of the 100 Fastest-Growing Companies, we've learned one thing well: Rapid growth alone does not make for smart stock buys. That lesson is on our minds again as we work to finalize our 15th annual roster of fast growers (look for it in the Sept. 5, 2005, issue). To help guide investors last year, we selected the stocks of seven companies we believed capable of sustaining their robust expansion (see "Seven Stocks to Bet On" at fortune.com). We'll be repeating the same feature this year. But first we decided to review our 2004 picks. For the most part they've been solid: Five of the seven stocks are up, and our miniportfolio has produced an average total return of 18% since Aug. 16, 2004, vs. a 16% return for the S&P 500. However, we got one stock very, very wrong. Here's a detailed look at our picks, from best to worst.

Encore Acquisition This pint-sized oil and gas driller has been a huge success for investors--even relative to most firms in the red-hot energy sector. Encore's 72% total return over the past 11 months smokes the 41% return of the S&P 500 Oil & Gas index. But Encore, which specializes in squeezing crude out of wells the big drillers leave behind, trades at 17 times its previous 12 months' earning, vs. just 12 times when we chose it. We like Encore's prospects, but it's already had quite a run.

Pulte Homes If anything has been hotter than energy, it's housing. No surprise, then, that our pick of the big public homebuilders has produced a huge return. But even though Pulte is near its 52-week high, plenty of market observers believe it's still cheap. In fact, the builder recently made it through a series of rigorous screens to be included in our annual FORTUNE 40 portfolio as a Deep Value pick (see fortune.com). "Pulte is trading at 8.4 times 2006 earnings," says Merrill Lynch analyst Lorraine Maikis. "That's a 50% discount to the S&P 500, and the earnings growth rate is multiples of the market."

Thor Industries Analysts who cover Thor, the nation's largest recreational-vehicle manufacturer by volume, like to point out that a baby-boomer turns 50 every seven seconds. And that surging supply of empty-nesters is driving unprecedented demand for RVs. In early July, Thor reported another round of record sales. But we think this could be just the beginning of a long joy ride for investors. Like Pulte, Thor qualified for our 2005 FORTUNE 40 portfolio.

Electronic Arts The videogame business is notoriously cyclical, and in down times investors can get blasted. Case in point: When EA missed its fourth-quarter numbers this spring, the gamemaker shed 26% of its market value in a matter of weeks. Even so, EA stock is up a healthy 18% since we recommended it, and we see the current dip as a buying opportunity. The launch of Sony's PlayStation 3 and Microsoft's Xbox 360 in the coming year should give EA a big boost.

Symantec It's been a roller-coaster year for Symantec. After running up last fall, the stock tumbled in December when the company said it would merge with Veritas, a slower-growing software firm. But we're sticking with the pick. The need for data-storage and security software is only increasing, and the new, bigger Symantec is still led by standout CEO John Thompson.

Forest Laboratories The drugmaker's successful efforts to move patients from its blockbuster antidepressant Celexa, which came off patent last year, to a newer version called Lexapro hit a snag in June when Medicare/Medicaid administrators said the program would cover the generic version of Celexa. And a generic rival is suing Forest to challenge the patent on Lexapro, which now makes up two-thirds of its sales. But the stock has plenty of upside if investors can weather the storm. Forest has a strong roster of drugs in development, $1.6 billion in cash, and zero debt. It could also be an enticing takeover target for a pipeline-hungry giant like Pfizer.

Bradley Pharmaceuticals Bradley, which makes treatments for dermatological and gastrointestinal ailments, is certainly a blemish on our record. We lauded Bradley's marketing prowess last year. However, aggressive competition from privately held generic competitor River's Edge has eaten into sales of its prescription moisturizer Keralac. Plus, Bradley still hasn't filed a 10-K for 2004; its accounting is being investigated by the SEC. The stock is trading at book value and may be destined for a mild rally. But our advice is to cut your losses.

The wild bunch Our fast-growing picks have been volatile. But together they've averaged a total return (including dividends) of 18%.

Split adjusted.