(FORTUNE Magazine) – In every eighth-grade class there's one kid who towers over all others. He's the lanky six-footer who makes the rest of us feel like trailers parked at the base of a skyscraper. Teachers, coaches, and even parents predict he'll soon top seven feet; then he'll be the center for the Lakers. No doubts. A slam-dunk.

Flash forward a decade. How tall is the kid now? Six-foot-one--and he couldn't sink a basket if the hoop were twice regulation size. Glad you didn't bet on that deal? So why did you plop $10,000 into the dot-com your buddy told you was a sure winner? The one that just filed for bankruptcy.

The point is simple: Investing in fast-growing companies is no more predictable than betting a teenager will become the next Shaquille O'Neal. Some of the hardest-charging companies turn out to be duds, tripping over their own overgrown feet. And yet investors keep searching, because growth is what has driven the stock market for years and what will continue to drive it.

The task, then, is to sort the awkward teens from the future Shaqs. FORTUNE's comprehensive annual list of America's 100 Fastest-Growing Companies has some of both. That's in part because our methodology is pure mathematics: To make the cut, a company has to have grown profits and revenues at a 30% annualized rate over the past three years. The math helped us highlight some great growth stocks early on--like Sun Microsystems (which first made the list in 1988), Cisco Systems (1991), and Dell Computer (1991). And somewhere in this year's list, which ranges from Pokemon marketer 4Kids Entertainment at No. 1 to mortgage lender Doral Financial at No. 100, may be the next giant. The problem is that most companies won't sustain their big numbers. Shipments are delayed. CEOs micromanage. New employees aren't trained right. Major customers switch to cheaper alternatives. For every Siebel Systems (No. 1 last year, No. 3 this year, and featured in Melanie Warner's story "Confessions of a Control Freak"), there's an NCS Healthcare (No. 70 last year). While Siebel's stock was busy soaring 406%, NCS's tumbled 90%. Say bye-bye to the list, NCS.

With that in mind, we dug into this group to find a core portfolio of ten emerging growth companies that possess the management depth, dynamic products, and unlimited market opportunity to become superstocks. How did we pick the best of the bunch? (One caveat: We eliminated a handful of well-known names that are proven winners, like Dell, EMC, Enron, Qualcomm, and Siebel; you know about them.) We started by enlisting the help of six of the hottest money managers out there--Paul Cook at Munder Capital Management, Kevin Landis at FirstHand Funds, Mary Lisanti at Pilgrim Advisors, Paul McManus at Independence Investment Associates, Alberto Vilar at Amerindo Investment Advisors, and Garrett Van Wagoner at Van Wagoner Capital Management. These professional stock pickers, who collectively manage $50 billion, whittled the list down to 25 companies.

Then we put each of the remaining 25 to the test. With advice from Ian MacMillan, executive director of the entrepreneurship program at the Wharton School, we looked at key issues that fast-growing companies must confront. Every investor should ask questions like these before putting money into fast-growers: Is growth diluting management's attention? Can the company handle the stress of doubling in size every year or two? Does the CEO delegate? Does the company meet its stated goals? Are the macroeconomic trends in place to provide unlimited growth potential?

After all that, we came up with ten winners, in four different kinds of businesses. Two warnings: All ten already carry fairly high price tags, and they all carry considerable risk as well. So before you buy in, make sure you already have a well-diversified portfolio that can tolerate volatility.

THE BUILDERS

Creating the building blocks of networks--from wireless to the Internet--has been a lucrative area for companies and investors. Two builders are particularly well positioned: Network Appliance (No. 4) and Solectron (No. 73).

Based in Sunnyvale, Calif., Network Appliance makes data storage devices that content providers or companies can locate across an entire network, making it easy for a wide range of customers or employees to access data. Yahoo, for instance, stores millions of e-mail addresses and personalized Web pages on Network Appliance devices to dramatically speed up traffic and limit the chance of a data jam. This is a newer and different market from the one dominated by the 800-pound storage gorilla, EMC, whose core devices are attached directly to server computers. Investors have already registered their enthusiasm for the new king of cache, lifting Network Appliance shares 4,500% since 1995. For good reason: Unlike most growth companies with cool products, Network Appliance has had little trouble handling the pressure of accelerating demand. Five years ago, when CEO Dan Warmenhoven was in charge of a $15 million-a-year business, he and senior managers bet on network-attached products. Now annual sales may well hit $1 billion by 2001. "Our goal is to deliver predictable, sustained growth," Warmenhoven says.

That kind of execution makes the stock attractive, especially now that the big boys at EMC and Sun are expected to fight back. EMC, for one, is introducing a new line of network-attached products. Still, analysts remain bullish for several reasons. First, the network storage market is growing by more than 70% a year, says Goldman Sachs analyst Laura Conigliaro, who notes that there's no slowdown in the amount of data companies are putting online. Second, Network Appliance is broadening its product lines to tap into more of the storage market. And third, "they have major clients growing at a fast pace," says Conigliaro, "and they have proved they can keep up. That will breed more business."

More business has been the theme at Solectron for years. Over the past decade CEO Koichi Nishimura, known for driving an old Honda and wearing dark gray suits like a uniform, has turned Solectron into Wall Street's dream juggernaut: a $12-billion-a-year company growing 53% annually with stakes in the red-hot wireless, networking, and server markets.

Based in Milpitas, Calif., Solectron rules the business of contract manufacturing. Each day Solectron's 40,000 employees, who are spread throughout 20 manufacturing plants in Scotland, Mexico, Malaysia, the United States, and elsewhere, assemble cell phones, circuitboards, servers, workstations--pretty much anything that big manufacturers like Cisco, HP, and Nortel don't have the time to piece together. This lucrative industry is growing 20% annually, as more and more companies outsource: Merrill Lynch analyst Jerry Labowitz estimates that contract manufacturing will soon be an $88-billion-a-year industry. Not surprisingly, Solectron has strong rivals, including Jabil Circuit, Flextronics, and Sanmina (No. 53 on FORTUNE's list). But Solectron stands out because of Nishimura and his management team. They're sticklers for customer satisfaction, a weak spot for many growing companies, and have twice earned the prestigious Malcolm Baldrige National Quality Award. They're also attuned to emerging markets. Labowitz notes that one huge opportunity for outsourcers is Japan, where one-third of all electronics are produced. Nishimura, who speaks Japanese, set up a Tokyo office in the early 1990s and has successfully lobbied companies there for years. "Solectron is going to have $30 billion to $40 billion in annual sales before you know it," Labowitz says.

BEHIND THE SCENES

Behind the sometimes pretty front end of a corporate Website are a whole lot of back-end products and services--and a dynamic market for investors. Companies that make the Internet work for businesses can make it work for investors as well. Three that we like are Web-testing company Mercury Interactive (No. 13), consultant Sapient (No. 32), and B2B software upstart I2 Technologies (No. 8). All three continually reinvent their businesses to adapt to industry evolution--and then execute their new plans.

Back in the early 1990s, for instance, Mercury Interactive's core business was testing Unix and Windows software. Then it zeroed in on Y2K. Now it seems to have found a niche with legs: Web performance management (think pit crews to help you race down the information superhighway). Its software and hosted services monitor the Websites of more than 10,000 companies, including Amazon.com, America Online, Cisco, Citigroup, J.C. Penney, Philip Morris, and Wal-Mart. Even author Stephen King hired Mercury; the company made sure that his Website, which offers chapters of his latest novel, could handle lots of traffic. Mercury has a 40% share of the testing market, according to International Data Corp., and sales and profits have grown 55% and 79% annually the past three years. Its market has only begun to heat up. Says portfolio manager Mary Lisanti: "As we put more and more stuff on the Internet, Mercury will be in the sweet spot." Want another reason to like Mercury? Get this: Unlike some growth companies that depend on one major client, Mercury is diversified. In the most recent quarter, it recorded more than 150 deals in the $100,000 to $750,000 range and none was worth more than $1 million.

Sapient, an Internet consultancy in Cambridge, Mass., has doubled revenues every year since 1995, and has a similar market opportunity. Co-CEOs Stuart Moore and Jerry Greenberg founded the company in 1991, maxing out eight personal credit cards to get the business running. Today, Sapient provides consulting on business strategy and Internet solutions to firms like Corning, GE Capital, and BMW. Sales recently topped $319 million for the past four quarters, and growth--clocked at a 79% three-year annualized rate--should keep up as Sapient expands into Germany, Japan, and India. And though Moore and Greenberg still share an office with their desks less than a foot apart, they are not micromanagers. In fact, they insist their success is built on an ability to delegate. Sapient's recently appointed chief information officer, for example, will handle the growing demands of a company that now employs 2,000 consultants in 16 locations around the world. The company also split its financial statements into eight regional groups, each with its own performance targets. Moore, who needs to stave off a challenge from a big competitor--IBM--says, "You can't run a large business centrally." He and Greenberg also recently inked a partnership with investment bank Thomas Weisel to create a $1.3 billion private equity fund that will discover and advise Internet-based startups.

Execs at I2 Technologies will tell you that customers who purchase their supply-chain-management software save and make a lot of money as a result: $13 billion so far, with $50 billion projected over the next five years. A stretch? Maybe not. I2's products and services are popular because they help companies coordinate better between divisions and with suppliers and customers. Nike, for example, has decided to use I2's software to help its footware, apparel, and other operations work together more efficiently. Since I2 wants to continue to stand out in a competitive field, it pumps 22% of revenues into R&D, says EVP Tom Cooper. The ultimate goal? To become a $5 billion company by 2005 (to put that in perspective, sales over the past 12 months have reached $750 million). I2 has smartly partnered with Ariba and IBM to integrate services in what some analysts see as an effort to keep rival Oracle at bay. And senior management is finally learning to be less awkward with Wall Street--an essential tool for any growth stock trading at a substantial premium to the market. In 1998, I2 created an investor stampede that lopped 25% off the stock in a single day when it clumsily attempted to diminish expectations. Portfolio manager Alberto Vilar, who bought shares at the IPO in 1996, remembers CEO Sanjiv Sidhu shying away from discussions with analysts. But that's changed. "These guys now know that to Wall Street you're only as good as the next quarter," says Vilar.

WIRELESS WIDGETMAKERS

For every Nokia or Qualcomm, there are dozens of small companies that provide the tiny parts inside the latest cellular phones, handheld computers, and talking refrigerators. Consider RF Micro Devices (No. 2), in Greensboro, N.C., whose semiconductors transmit data on cellular and cordless phones, handheld computers, wireless security systems, and wireless local area networks. Since 1997, sales have risen from $29 million to an estimated $450 million for fiscal 2001--a 1,400% advance that has been tracked in lock step by the company's stock. Analysts like Paine Webber's David Wong, a FORTUNE All-Star, have wondered how RF Micro can possibly sustain such growth without stumbling--especially when Finland's Nokia accounted for 60% of 1999 sales.

So, can investors feel safe in a company that is dependent on one customer? Wong, for one, says not to worry. For starters, RF Micro has already become less dependent on the Finns. Its customer list now includes nearly every player in the wireless sector, from Ericsson to Motorola. And Qualcomm is bundling RF Micro's power amplifier into its popular chip set for CDMA technology--a move that should bolster sales for both companies. To handle increased demand, RF Micro plans to ramp up wafer fabrication from 40,000 a year now to 270,000 a year in 2003. Wong now believes RF Micro can increase sales 50% annually for years to come. So much for one skeptic.

Not far down the road from RF Micro, in Durham, N.C., executives at Cree (No. 11) are busy trying to capitalize on their position as the leading producer of ... the color blue. That's no joke. Among its 71 patents, Cree has a virtual monopoly on the blue light-emitting diodes, or LEDs, that help backlight car dashboards, cell phone displays, and even outdoor billboards. Cree's semiconductors are essential to the wireless world.

In July, the company closed the books on a fiscal year that saw profits jump 145%, to $30.5 million, on sales of $109 million. The company's hold on blue is such that analysts forecast similar growth ahead: Cree should be perfectly positioned as new LED applications (in new, "smarter" appliances, for example) come to market.

A third wireless play is Comverse Technology (No. 51). Comverse makes voice-mail and messaging software and systems for telecommunications. Customers include pretty much every telecom that wants to be in on the wireless voice and data boom: AT&T, Deutsche Telekom, Telecom Italia. Investors have been buying the stock on the premise that it will benefit as competing wireless providers try to offer more features and services to users, such as instant messaging, stock quotes, and voice recognition. Says Cook at Munder Capital: "This is an instance where a company is taking share in a growing market."

HEALTH BASICS

Given the aging U.S. population, health care should be growing for years to come. For most investors, the smart bet is either a specialized mutual fund like Vanguard Health Care or a safer pharmaceutical like Johnson & Johnson. But if you can stomach risk, drugmaker Forest Laboratories (No. 23) and medical device maker Guidant (No. 99) may offer great rewards.

The case for Forest is simple. This specialty drug company licenses, develops, and sells drugs invented by small pharmaceuticals, often from Europe, that can't break into the U.S. market. Its scientists don't do basic molecular research, but rather focus on bringing the drug to market. This has allowed Forest to assemble a portfolio of drugs--Aerobid (asthma), Celexa (depression), Infasurf (respiratory distress syndrome in premature babies), and Tiazac (angina and hypertension)--that compete successfully with better-known brands. Celexa, for example, battles Prozac. But it now captures nearly 13% of new prescriptions, and brought in $150 million in sales last quarter, according to President Ken Goodman. What's next in the pipeline? Forest has licensed new products for arthritis, Alzheimer's, and depression.

Guidant's focus is heart disease. It is largely known for selling stents--tiny wire tubes that are inserted into clogged arteries and then pumped up to allow blood to flow more easily. As with Forest, some analysts worry that Guidant, which competes with Medtronic and Johnson & Johnson, is too dependent on its key product. But Michael Kenneally, chief investment officer at Banc of America Capital Management, sees three reasons to own the stock. First, Guidant is developing a promising new product: an implantable device that acts as a next-generation pacemaker for treatment of congestive heart failure. Roughly five million people suffer from this, meaning their hearts lose the ability to pump blood, and an additional 500,000 cases are diagnosed each year. Second, the company channels as much as 15% of revenues back into research, which has led to a steady flow of innovation. In 1999, for example, 64% of sales came from products on the market for less than a year. Third, its management, which recently won approval for the world's smallest and thinnest dual-chamber defibrillator, has a strong track record of making good on its promises. And as any successful growth investor knows, it's that third point that matters most of all.

REPORTER ASSOCIATE Irene Gashurov

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