Issues defined as “growth stocks” have a number of common traits, but the most important is that their earnings are expected to grow at a faster pace than the broader market over a period of time. With that in mind, Value Line runs a screen in its Summary & Index that searches for stocks that meet this key criterion. It focuses on issues that have recorded good per-share earnings gains in recent years and that ought to continue to do so in the future.

To make our list, a company's annual growth of sales, cash flow, earnings, dividends and book value must together have averaged 10% or more over the past 10 years and be expected to average at least 10% in the coming 3-5 years, which is no easy feat considering that this time span included varying rates of economic growth. Below we highlight two of the stocks from our screen with sound investment merit: Ensco plc (ESV) and Citrix Systems (CTXS).

Ensco plc

Ensco plc is an offshore contract drilling company that provides services to the oil and gas industry within the major markets across the globe, including Southeast Asia, Australia, the North Sea, the Mediterranean, the U.S. Gulf of Mexico, the Middle East, Brazil, and West Africa. Its core business is concentrated in three main segments, Floaters (64% of 2012 operating income), Jackups (35%), and other (1%). At present, Ensco operates a rig fleet of 74 (counting rigs under construction), comprised of nine drillships, 13 dynamically positioned semisubmersible rigs, six moored semisubmersible rigs, and 46 jackup rigs. Major customers include many leading international, government-owned, and independent oil and gas companies, such as Brazilian company, Petrobras, which accounted for 24% of the Ensco’s consolidated revenues.

The oil and gas industry is highly cyclical; therefore leaving Ensco’s operating results susceptible to economic downturns and deteriorating spending from oil and gas companies. Likewise, demand for drilling rigs is directly correlated to commodity demand, as well as the global willingness for offshore exploration. 

Nonetheless, the current expansionary state of the macro landscape, coupled with positive rig activity, paints a rather encouraging picture for the company’s growth prospects over the long haul. Most notably, abundant discoveries in the West African region are likely to deliver additional rig inquiries. Also, the outlook for deepwater drilling demand in Angola, Nigeria, Brazil, and Mexico will probably remain elevated, underpinned by regulatory agreements, exploration success, and higher commodity prices. Moreover, an increase in demand has resulted in upward pressure on day rates. The ENSCO 8506 deepwater semisubmersible rig, which began full operation in the first quarter of 2013, helped contribute to an advance in the average day rate and utilization, now $358,000 and 83%, respectively. If this trend holds true with future endeavors, operating margins should improve 2-3 percentage points per year, bringing margins back to pre-recession levels. 

In sum, the company’s bullish stance on drilling demand is somewhat warranted, as they have six rigs in the pipeline for delivery through the end of 2014. All things considered, a burgeoning top-line, efficient operating margins, and a strengthening global climate, ought to support earnings per share expansion over the 3-to 5-year stretch. Investors with a longer-term holding period may be rewarded by the company’s bottom-line growth potential. Too, an attractive dividend yield should further sweeten the pot.

Citrix Systems

Citrix Systems develops and markets cloud-computing software to IT businesses, governments, and educational institutions, helping them enable mobile workstations and access data through multiple mediums of technology. The company’s operations are broken down into two segments, Enterprise and Online Services, accounting for 80% and 20% of 2012 sales, respectively. Its proprietary cloud-based networking and desktop virtualization products are marketed both domestically and internationally. To date, sales outside the U.S comprise nearly 44% of total sales, as regions such as China and Eastern Europe represent additional avenues of growth further out. Just to note, however, Citrix does face intensifying competition from players such as VMware and F5 Networks, Inc., just to name a few. 

The industry as a whole is likely poised for growth over the long haul. Cost-efficient properties associated with a cloud-based software infrastructure have shed some light on the industry. Businesses are now able to more effectively manage overhead costs, achieve economies of scale, globalize operations with limited capital, and improve accessibility. Indeed, Citrix is well-positioned to benefit from the increasing popularity of the cloud computing space.  Moreover, the recent surge in R&D and marketing efforts to widen the exposure of its products and services ought to bear fruit.

The company’s fundamentals have plenty of room to run, in our view.  This cash-rich entity has nearly a billion dollars in dry powder and zero debt on its books. Citrix will probably put that cash to good use by being active on the acquisition front, thus helping to broaden its product portfolio and differentiate from the competition. Further, the bottom-line figure should be a likely beneficiary of a healthy balance sheet, thus has the potential for solid growth 3- to 5-years hence. (Note: Citrix reports earnings on April 24, 2013 after market close).

At the time of this article's writing, the author did not have positions in any of the companies mentioned.