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Patrick McKeough is one of Canada’s top safe-money advisors. The Wall Street Journal, Forbes and The Hulbert Financial Digest have all recognized his ability to find stocks with hidden value. He is editor and publisher of The Successful Investor, Stock Pickers Digest, Wall Street Stock Forecaster and Canadian Wealth Advisor; inventor of the Quick Profit/Value System and the ValuVesting System™. A best-selling Canadian author, he wrote Riding the Bull, the book that predicted the 1990s stock-market boom.

Investor Toolkit: The key to making the best growth stock picks

December 28, 2011 -  One Comment
Posted by: Pat McKeough Filed in: Growth Stocks
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investor toolkit growth stock picks

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investment advice. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “There are 2 fundamental things you should know about making growth stock picks.”

Growth stocks are companies whose earnings growth has been above the market average, and is likely to remain above average. It is often the case that these firms pay small dividends or none at all. Instead, they invest their cash flow in promoting their growth.

Although these stocks can be highly volatile, they often make good long-term investments. They may be well-known stars or quiet gems, but they do share one common attribute—they are growing at a higher-than-average rate within their industry, or within the market as a whole, for years or decades.

Here are 2 fundamental factors that will help you make winning growth stock picks—and avoid mistakes that can kill your profits:

  1. Know the difference between momentum stocks and growth stocks: It’s very easy to confuse growth stocks with momentum stocks. Like growth stocks, momentum stocks often move up faster than the market averages. But momentum stocks attract a different kind of investor. Growth-stock investors are in for the long haul, while momentum investors aim to profit from short-term trades. Momentum investors are particularly keen to jump in on a so-called “positive earnings surprise.” That’s when a company outdoes brokers’ earnings estimates.

    Momentum investors see a “negative earnings surprise” (or lower-than-expected earnings) as a sell signal. They use a number of formulas to make buy and sell decisions, but all come down to “buy on strength and sell on weakness.” So they tend to pile into the same stocks all at once, and the gains that follow are something of a self-fulfilling prophecy.

    The trouble is that when the stock’s rise falters, momentum investors also try to get out as a group. The trouble is, there are never enough buyers to accommodate them. That leads to violent fluctuations in the stock’s price.

Look at the latest figures from the undisputed independent authority on investment newsletters, Hulbert Financial Digest. They show that The Successful Investor has beaten the Wilshire 5000 Total Stock Market Index with a spectacular 16.7% compounded over each of the last 10 years. That’s more than 100% better than the index’s 7.9% average! That means that during a decade that included some of the most wrenching downturns in stock market history, The Successful Investor posted remarkable returns for our readers. Pat McKeough tracks three different portfolios for readers of The Successful Investor—one for Conservative Growth, one for Aggressive Growth and one for Income-Seeking Investors. And subscribers get free updates and advice on the stocks they’re following every week in the E-mail/Telephone Hotline. We are happy to offer you a bargain-priced, no-risk introduction to The Successful Investor. It gives you the first month FREE. Act now. Click here.

  1. Value stocks can lower your portfolio’s volatility: Most successful investors hold some growth stock picks and some value stocks at any given time, depending on where they discover the best opportunities.

    Value stocks are stocks trading lower than their fundamentals suggest. They are perceived as undervalued, and have the potential to rise. Many technology stocks, for instance, start out as growth stocks and transition into value stocks. One company that appears to be making the transition, for example, is security and anti-virus specialist Symantec, symbol SYMC on Nasdaq (a stock we analyze in our Stock Pickers Digest newsletter).

    Together, growth stocks and value stocks can form a winning combination. A growth stock can be a top performer while the company is growing. However, a single quarter of bad earnings can send it into a deep, though often temporary, slide. Value stocks can test your patience by moving sluggishly for months, if not years. But they can make up for it by rising sharply when investors discover their true value.

Our advice: If you invest as we advise—by spreading your investments out across the five main economic sectors, investing mainly in well-established companies and staying away from stocks in the broker/public relations limelight—you will automatically have some growth stocks and some value stocks.

That helps you achieve good results while reducing volatility. But in the end, we think the relative amounts you invest in growth and value stocks should be secondary to your portfolio’s diversification and overall investment quality.

If you are looking for advice on the best growth stocks – the ones that will grow into value stocks – you really should have a subscription to Stock Pickers Digest.

You can save $50.00 off the regular rate with our introductory subscription (exclusively for new subscribers). The latest issue gives you our very latest analysis—and clear buy/sell/hold advice—on 20 stocks that may be suitable for the part of your portfolio you devote to aggressive investing. Click here to take advantage of our special subscription offer.

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One Response to “Investor Toolkit: The key to making the best growth stock picks”

  1. Alain Cloutier on March 10th, 2012 at 12:07 pm

    I will be direct and upfront with you. I am upset to have spent so much money with “Trading and Investing Letters” which never delivered on even light profit. THIS WAS BEFORE I SUBCRIBE to TSI Network ! Yes I am upset because I did not subcribeb earlier to Pat Mckeough’s letters. I lost 3 years in investing on what I will call “May-Be” recommendations. In summary, let me tell you that my first investment with TSI Networks returned an immediate 17% profit. Which I never achieved in the last 3 years. I know it will not always be the same. But you must admit with me this is a great entrance to confidence and trust.

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