A Rocket From Russia

As his voice merges with the endless glug-glugging of the dispenser, you wonder why it's always other people who get in on the highflyers. Just once, you think, you'd like to shrug off your frumpy value-investing bias and buy something sexy. But it's probably too late to buy the ones that have already run up, right?

That's where our Rocket Fuel screen comes in. While we typically stress frugality in our stock-picking, once in a while we like to run right at soaring stocks and see if it's too late to jump onboard.

This week, we used our stock-screening tool to search our database of 8,300 companies for those in the top 25% in terms of 52-week share performance. We also looked for low debt, as well as sales- and earnings-growth rates of more than 20% apiece. For details on all of our Rocket Fuel criteria, take a look at the recipe on the top right of this page.

Our demands yielded 10 impressive candidates. Let's take a closer look at two of them.

VimpelCom
Need to pick up a few phrases for an upcoming trip to Russia? We've got some, but to use them you'll have to steer your conversations toward Moscow-based cell-phone-service provider VimpelCom (VIP).

Dvadcat' devjat' procentov na ruinochnoju dolyu means 29% market share. That's what VimpelCom enjoys in Russia through its Bee Line brand of cellular service, making it the second-largest provider behind Mobile TeleSystems (MBT), which also made our list. Keep in mind that this doesn't represent 29% of Russia's population, but rather 29% of the 12% of Russians who currently use cell phones.

Sorok sem' procentov chistoe uvelichenie dohoda means 47% increase in net income. The company's first-quarter results, reported May 29, showed earnings of $41 million, up from $28 million a year earlier, on operating revenues of $244 million, up from $145 million. As for the number of users during the period, well, chisla v tablice nizhe means check out the numbers on the table below:

That's good-looking growth, except for the growth in churn, the number of customers who switch to other providers. But the company says some portion of this increase came from internal migration of customers to different plans, which is technically regarded as churn even though the customers remain under the same roof.

VimpelCom announced Tuesday that its St. Petersburg service, started on April 16, has already signed up 75,000 users. The company was the last of the major providers to enter the St. Petersburg market, but analysts expect that it will have 150,000 users there by the end of the year, which would represent a 5% market share. Not exactly the 51% share the company enjoys in Moscow, but it's a start.

At around $45 per share VimpelCom trades at just 12 times Reuters Research's consensus 2003 earnings estimate of $3.69. That's less than a third of the communications-services industry's average P/E of 38. And VimpelCom is projected to increase earnings at a stunning 31% per year for the next five years, compared with just 12% for the group. That makes for one of the lowest price/earning-growth, or PEG, ratios we've seen in a long time: just 0.39, compared with 3.17 for global peers, 1.59 for the S&P 500 and 0.55 for direct competitor Mobile TeleSystems.

In addition to its mouth-watering valuation, Vimpel has a management team widely regarded as one of Russia's best, along with some big-hitter investors. About a quarter of VimpelCom's shares are owned by Norwegian wireless-service provider Telenor, and another quarter are owned by Alfa Group, a private Russian conglomerate.

Now, a word of caution is in order. While these American depositary shares trade in New York, VimpelCom is thoroughly Russian. And while Russia is lovely for travelers, it can be downright dodgy for businesses and investors. How dare we say such a thing? Well, aside from the currency volatility and lax financial reporting requirements, there's the corruption. Berlin-based Transparency.org's annual Corruption Perception Index, which draws on 15 different surveys of business people and country analysts from around the world, ranks Russia No. 71 out of 102 countries surveyed, tied with Zimbabwe. And its Bribe Payers Index ranks Russia dead last out of 21 countries. If that doesn't sufficiently belabor the point, note that the Economist magazine has for years referred to the Russian political economy as a "kleptocracy."

All told, we think VimpelCom has the makings of a fine growth stock, albeit a risky one.

Aeropostale
Introduced as a private-label brand in Macy's department stores in 1980, New York-based Aeropostale (ARO) was launched as a specialty store in 1987, and completed its initial public offering in May 2002. Shares closed at around $27 on their first day of trading. By October they were less than $6.

Now the stock is right back where it began, at around $27. How did management bring shares back to life? By selling a surprising amount of clothes, as it turns out. Revenues in the first quarter, reported May 22, rose 32% year-over-year to $112 million. Net income for the quarter grew to $2.1 million, or five cents a share, vs. a year-prior $592,000 or one cent. Top sellers contributing to the strong results included knits, polos, henleys and baby tees, which, apparently, have nothing to do with babies.

Shares trade at 18 times projected 2003 earnings, compared with 21 for the specialty retailer group. And Aeropostale is expected to increase earnings over the next five years at nearly 24% annually, compared with 14% for the industry. That makes for a PEG ratio of 0.75, compared with 1.5 for peers.