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: Bed Bath & Beyond (BBBY) and ResMed, Inc. (RMD).

Bed Bath & Beyond

Bed Bath & Beyond, along with its subsidiaries, operates a chain of retail stores. Its outlets sell a range of domestic goods including draperies, kitchen items, and a vast array of bath products. Its subsidiaries include Christmas Tree Shops, Harmon and Harmon Face Values, and buybuy BABY. In addition to its retail distribution channels, it also sells products to the hospitality, healthcare, and cruise line industries. As of November 2012, the company’s store total was 1,466. The breakdown is as follows: Bed Bath & Beyond: 1,003, World Market, and Cost Plus World Market: 264, Christmas Tree Shops: 74, buybuy BABY: 78, and Harmon: 47. The company’s various outlets operate in 50 states, the District of Columbia, Puerto Rico, and Canada.

The company has faced its share of challenges in the recent past. Indeed, the negative impact from Hurricane Sandy, the drawn-out recovery in the housing market, and customer migration towards online shopping, have all weighed on Bed Bath’s performance.. However, the company’s top and bottom lines held up pretty decently for fiscal 2012 (year ended February 28th) and our forecast calls for double-digit earnings-per-share growth in the next two years.

Despite the aforementioned setbacks, the company appears to be well positioned for growth. It will likely capture greater market share through several avenues. Acquisitions ought to be a main priority. In the recent past, Bed Bath & Beyond acquired World Market and Linen Holdings, which have already begun to make sales contributions for the home furnishings retailer. Recent strength in the housing market is also encouraging. Furthermore, the company intends to enhance its relatively weak virtual presence by investing between $275 million and $325 million over the next few years. It recently opened an 800,000 square-foot distribution center to fulfill e-commerce orders and plans to overhaul the features and functionality of its Website to better compete with more established brick and mortar/online merchants like Wal-Mart (WMT- Free Wal-Mart Stock Report) and Williams Sonoma (WSM).

All told, these high-quality shares offer solid capital appreciation potential over the 2016-2018 time frame. We project that both sales and earnings will average double-digit annual growth over the 3- to 5-year period. This rate is consistent with historical trends. And despite a competitive landscape and the potential for restricted consumer spending, the company’s growth platforms should allow it to continue to capture market share moving forward.

ResMed Inc.

ResMed Inc. is a developer, manufacturer, and distributor of medical equipment for treating, diagnosing, and managing sleep-disordered breathing (SDB) and other respiratory disorders. The company was formed in 1989 to commercialize a new treatment for obstructive sleep apnea (OSA), called continuous positive airway pressure (CPAP), whereby pressurized air is delivered to prevent the collapse of the upper airway during sleep. Since its inception, the company has added substantially to its product pipeline treating SDB, and offers a number of innovative tools such as airflow generators, diagnostic products, mask systems, headgear, and other accessories. 

Arguably the main growth driver for ResMed is growing global awareness of sleep disorders. It is estimated that one in five adults suffer from some sort of sleep disorder, which totals roughly 40 million people in the United States alone. Its marketing strategies include spreading knowledge of these disorders, which hurt overall quality of life.

In order to further penetrate these addressable markets, ResMed’s research and development pipeline has been kicked into overdrive. Of late, the company has created the Narval CC, a device which reduces the obstruction of the airway in an attempt to reduce snoring. The company is currently seeking a Medicare reimbursement code for this device. Portfolio expansions are an effective growth catalyst, in our view. Furthermore, geographic expansion is another way that the company will likely capitalize on sleep order afflictions.

All told, these shares are worthy of consideration for a variety of investors. The equity is ranked to outperform the broader market averages over the upcoming year. Too, our upbeat 3- to 5-year earnings and sales projections suggest that the stock has the potential to generate above-average total returns to investors over that period. A dividend payment should also appeal to income-oriented investors. Backed by a strong Financial Position and above-average Safety rank, RMD shares make for an attractive all-around selection.

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