The past couple of years have been especially trying for investors who buy growth stocks -- stocks of companies that are expected to generate steady and above-average earnings gains year after year. Growth investors usually care less about the price and more about trying to ensure that companies grow as much as the investment world expects them to.

The Jensen fund managers take an unusual approach to growth-stock investing and, truth be told, it's one that the average investor will have trouble replicating exactly.

"We want companies with high profitability," says Robert Zagunis, one of the Jensen fund managers. To identify consistently profitable companies, Zagunis and colleagues focus on return on shareholder equity (ROE). Shareholder equity is a company's net worth. It is also known as book value. The profits that a company generates divided by its net worth constitutes its ROE.

The Jensen managers consider only companies that have had ROEs of 15% or more for at least ten consecutive years. Only about 110 publicly traded U.S. companies meet that rigorous requirement. The Jensen managers also seek companies with little or no debt. Highly profitable, low-debt companies can often take advantage of periods of economic distress to sharpen their competitive edge, Zagunis says.

Jensen managers also search for companies with rising revenues and positive free cash flow. Free cash flow is the cold, hard cash a company generates -- what it has left over after making the expenditures needed to maintain the business. The managers forecast a company's free cash flow for the coming ten years. They then discount the sum of all that estimated free cash by a proprietary interest-rate figure to account for the fact that a dollar earned in the future has less value than a dollar earned today. This gives them a company's so-called intrinsic value.

"This allows us to know what the business is really worth," says co-manager Bob Millen. Jensen buys a stock only when it sells at a significant discount to the company's intrinsic value.

Finally, Jensen looks for top-notch corporate managers. They like to see managers hiking dividends, buying back shares and paying off debt.

Jensen's managers will sell if "something has not gone fundamentally well and a company can no longer meet our high standards," Zagunis says. If a company's ROE drops below 15 "and there are no extenuating circumstances, they're gone," Millen says. Jensen also unloads a stock when its price rises well above its intrinsic value.

You can find stocks that could show up on Jensen funds' radar screen using these criteria:

1. You probably won't be able to replicate Zagunis's primary filter - that a company generate a return on equity of at least 15% for each of the ten previous years. Instead, search for companies with average five-year ROEs of 15% or more.
2. Minimum market value: $1 billion and up
3. Estimated long-term growth rate: 13% or more
4. Value measure: PEG ratio (P/E divided by estimated earnings growth) of 1 or less (a criteria we've added as a proxy for Zagunis's requirement that a stock sell well below the company's "intrinsic value")
5. Debt-to-equity ratio: less than 33%

Note: Value Line Investment Survey provides ten years' worth of ROEs for the stocks it follows.

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