Investing With William Danoff of Fidelity Contrafu

Danoff works with about 120 analysts of domestic stocks and 100 analysts of overseas stocks to choose potential purchases. To find companies with the best earnings growth potential over the next five years they talk to company management and closely watch earnings reports.

Danoff also reviews per-share earnings growth rates over the last five to ten years, preferring companies with steadier growth. For cyclical companies, he aims to pinpoint where they are in the industry cycle.

Over all, he wants what he calls "best-of-breed companies" with strong competitive positions and management that capitalizes on opportunities for change. "We want them to tell us how they see the future and how they're going to get there," he said. "What drives the market? How do you position your products to capitalize on trends? What are you doing to grow the company?"

In his financial analysis, Danoff likes to see increasing sales or product prices, as well as improving profit margins. He also looks for climbing returns on equity, which typically reflect improvement in business operations, he said.

Danoff began buying shares of Ryanair Holdings ADS (RYAAY), the Irish discount airline, in June 1999. Danoff called Ryanair "a classic growth company" that has a good long-term record, and he said he expects annual earnings growth to average 25% to 30% over the next five years.