Best Growth Stocks to Invest in
Top Growth Mutual Funds To Invest In
What are Growth Stocks?
If you possess stocks in a successful company whose earnings, relative to the market, are expected to continue growing at an above-average rate, you’ve got yourself some growth stocks. Rather than yielding a super high income, growth stocks tend to increase in capital value. There’s a lot of hype surrounding these special (and pricey!) stocks; and it’s for good reason. They typically have impressively high price-to-earnings ratios. In most cases, the company would prefer to reinvest retained earnings in capital projects, so it’s not typically common for growth stocks to pay dividends. Instead, growth investors tend to receive returns from future capital appreciation. The return makes it worthwhile, but be prepared to pay top dollar to get involved in the growth game.
Philip Fisher, a pioneer in growth investing, wrote a book in which he spends an entire chapter urging readers to purchase shares of superbly managed growth companies - specifically technology companies. The pace of change in the tech sector creates an environment that’s ripe for disruptive innovations. Fun fact: Fisher started out as a value investor! His style evolved following lessons learned in the 1929 stock crash. He learnt the hard way that over time, a well-selected growth stock would substantially outperform a statistical bargain. Fisher emphasized, repeatedly throughout his career, the value of long term investing.
Other Types of Growth Investing
Growth Mutual Funds
Growth mutual funds are best characterized by their laser focus on capital appreciation. As with growth stocks, dividend payout is a rarity, so if that’s what you’re after - keep walking. You’ll also require a holding period of five to ten years; so make sure your time horizon allows for that. Portfolios would consist of companies with above-average growth in earnings - that of which would be reinvested into things like acquisitions, expansion, research and development, etc. Growth funds are for the risk-hungry. The potential is high but the risk may be higher, so make sure you have the stomach for it before investing.
Growth stock dividends are ideal for those who find the predictability of dividend-paying companies boring, but whose risk tolerance is not particularly high enough to experiment with the more volatile companies. Growth stock dividends offer an appealing combination - the security of a consistent dividend along with the excitement of an increasing stock price. Dividend growers represent a group of companies who reinvest part of their earnings in the business and distribute the rest to stockholders. Rising profits subsequently mean rising stock prices along with rising dividends.
Growth Investor Resources
Growth Investing Software
HGSI Investment Software: with its easy-to-interpret visual presentation and broad range of technical tools, this software performs comparative analyses of many groups of securities.
F.A.S.T. Graphs : Two subscription options are offered to allow for deeper and faster stock research.
Growth Investing Books
Here are some must-reads if you’re serious about getting into the growth investing game.
Benjamin Graham and the Power of Growth Stocks: Lost Growth Stock Strategies from the Father of Value Investing
Growth Investing Indicators
Brand New Technology
Brand new technologies tend to be unproven, and growth companies spend a lot of money on development and ramping up production.
Crazy PE Ratios
Growth stocks typically have super high PE ratios . A company has worth beyond its earnings and its important to balance intrinsic value against the money the company makes. Future potential should also be priced in.
Bump in the Growth Story
It’s inevitable that all growth stories will eventually fizzle out. Like a pendulum, the market is forever swinging. When growth comes to a halt, a more realistic per share price for the stock settles in. There are two possible outcomes here: either the company is now correctly valued (and was grossly overrated in the past) or the company is currently under-valued and poised for a strong rebound in the near future.