This is the headline investor category. Growth stocks drive media interest and market enthusiasm. Buying shares in a company whose stock price rises over time, or rockets higher in no time, can be one of the more exciting – and profitable – investments you’ll make.
Stocks come in different styles: out of favor companies with solid, but under-appreciated financials are known as value stocks. But high-flying firms with rising revenues and promising profits are the growth stocks that grab the spotlight.
How to identify a growth stock
While many times growth stocks erupt, seemingly out of nowhere, from innovative, new companies — they can also be found in a mature industry. Some companies are simply better managed and outpace the growth of the market in general and their competition in particular. Other companies discover new markets for their products or services, such as overseas trade, that fuels substantial new profits.
Growth stocks can also come from existing companies that develop new products or transition to a new technology – or ride the wave of a sudden social change. A mature company with stagnant growth like the IBM of the 1970s, can see its fortunes rise, such as in the mid-1990s when the advent of the personal computer market spurred new sales, only to fade again when more innovative competition came on the scene. That is the hard knocks arena of growth stocks.
It can be difficult to identify a growth stock, not necessarily from a financial analysis standpoint, but because of the fact that many times they are well hidden. Many are obscure, sometimes small companies that are just on the verge of a break-out. And they can be flying below the radar in a highly technical or specialized industry.
Growth stocks can also be fully valued by the time they come to your attention. Finding the “hidden nugget” that hasn’t yet been fully discovered by the market can be an exciting part of your research process. Accelerating sales, up-trending earnings growth, and excellent profit margins are some of the qualities to look for.
The very nature of a growth stocks means that your investment may be at a greater risk. Big upside potential can also mean big downside potential. Be prepared to monitor your investment carefully for hidden weaknesses that can slow momentum.
Yesterday was a rough day for stocks, especially the tech-heavy Nasdaq. The index lost over three percent and suffered its worst day since November 2011. Despite the rough patch, I found a stock that looks to have found support. Domain registration company VeriSign (NASD: VRSN) closed at $50.18 yesterday and this could be a good […]
As we head into yet another earnings season many investors are acutely aware that the market looks a tad expensive. That reality has hit home over the past two weeks as many of the leading growth stocks in the market have rolled over. This is especially true with high-profile Internet and tech stocks that led […]
By all accounts, 2013 was a great year for stocks. Even with the S&P gaining over 26% on the year, the biotech sector stood out as a top performer. The iShares Biotech Index Fund (NASD: IBB) gained 60% on the year. The following chart shows the performance of IBB versus the S&P 500 during 2013. […]
Where should I set a stop-loss, if at all? I just never know when to sell. It’s one of the most frequent questions I receive from our readers here at Wyatt Investment Research. In fact, it’s a question that my fellow employees have been inquiring about lately. Once a month we meet as a company […]
The recent selloff has hit some stocks much harder than others. The major indices are largely flat for the year, with the Dow Jones Industrial Average and Nasdaq down less than 2% and the S&P 500 index up slightly. But the story changes when you look closely at specific companies. In fact I found three […]