Stocks (MP) The best way to pick growth stocks may be in the eye of the beholder. To one investor growth stock means a big, successful giant like Apple, Inc, to another, growth stocks might mean the latest technology initial public offering. The thing is you should know is how to pick stocks to make your money count. Or should I say count your money all the way to the bank.
Growth stocks are great at growing sales and earnings because they own special qualities Listed below are the qualities to look out for when seeking growth stocks to add to your portfolio. Here’s a hint, they’re those in all likelihood to be demonstrated by companies that do the best. Remember, our lesson in value investing growth stocks, they’re the stocks you’re looking to hold on to for a long time.
Special Qualities of Growth Stocks
1. The best growth stocks deliver above-average growth. I’m not talking mediocre either. The company ought to be growing faster than the overall rate of their corporate profits and a lot faster than the other companies in its industry. The payoff resides in growth and in net profits. But the best stocks / companies will be delivering above-average growth in revenues and profits: an Apple in products and Oracle in computer databases. “High annual revenue growth is good, but if EPS has not increased proportionately, it’s likely due to a decrease in profit margin,” according to Investopedia.
Key: You will have to look at several shares in comparison to other companies. Is ABC Company growing its sales and profits faster than U.S. business in general? Look out for government and private sources for reports on rate of growth in company earnings. Much more important, is the company growing its profits faster than its competitors? Carry out your research. We’re talking about your hard-earned cash. Find answers to who the company competes with, exactly how does it perform compared to its competitors. Look out for growth of at least 15% on average a year, in revenues or profits or both.
2. Company owns strong position in its industry. The best growth companies thrive in growth industries. The stock you prefer should not only be at or near the top in its industry, but the industry itself will have strong growth prospects for the future. A company can stand out for a year or two in a slumping industry. Eventually, the industry’s lagging prospects will drawn down the standouts to the degree of the rest. Pharmaceuticals is typically a growth industry. Merck or Pfizer or Johnson & Johnson are leaders in this industry.
Key: Don’t just study the company –study the industry it is in. Identify the growth prospects for the future? Is the demand for what the industry makes growing or declining? Does the industry’s main product look like it has endurance, or is it a fly-by-night? You’re a long-term investor, so you want a leading company in an industry with the potential to keep growing.
3. The company has strong management in place. The best growth stocks without question are distributed by companies with management capable of continuing growth. These companies continue to appoint and train new management to keep the growth alive far into the future. Apple and Google, Inc’s both are examples of companies considered to have superior visionary management.
Key: You want company management with vision — as displayed in company reports, in articles in regards to the company and its industry that you researched, and in the image the company presents itself. You may not be able to meet the managers face to face, but you can learn a great deal about them. Ideally, the company with the best growth stocks will be engaged in training future managers, so top jobs are filled from within. Most imperative is the ability of management to set growth targets and to hit those targets. You’d be surprised at the availability of the information out there. I serve as a guide to make more money but, you have put in some work go and find some growth stocks today.
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