To find the best growth stocks to buy now, take a broad view of the stocks available on the market and, above all, look for companies with a strong reputation
Growth stocks are companies that have above-average growth prospects. Although these stocks can be more 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 grow at a higher-than-average rate within their industry, or within the market as a whole, for years or decades.
Growth stocks are likely to have sales and earnings growth well above the market average. Frequently they pay few, if any, dividends. Instead they typically reinvest any extra cash flow to promote further growth. Chosen wisely—according to our Successful Investor criteria—high-quality growth-oriented stocks can be worthwhile additions to most well-diversified portfolios.
For a rising portfolio
Learn everything you need to know in 'How to Find the Best Growth Stocks' for FREE from The Successful Investor.
Canadian Growth Stocks: CGI Group, CAE Inc., Fortis Inc. Stock and more.
Take a broad view when looking for the best growth stocks to buy now
As we follow our Successful Investor philosophy and look for the best investments to recommend in our newsletters and investment services, we start by putting all the important information we know about a company into perspective.
But things are never quite so simple. Your stock pick’s latest earnings may reflect unusually favourable or unfavourable conditions. This can make the company look safer or riskier than it really is—or more or less profitable. Take debt for example: a company may put funds it borrows to profitable use, increasing its earnings and its ability to pay interest on that debt. On the other hand, to boost earnings, it may sell assets to reduce debt and cut its interest costs.
In the end, there are many ways to try to put the myriad facts about a company into perspective. None are perfect, since all involve a mental balancing act between high and low estimates, history and the future, and faith versus skepticism.
Our goal is to put the information in a form that lets us weed out the extremes—excessively overvalued stocks, or those that are suspiciously cheap. In the long run, investors make most of their profits in investments that offer both good value and an attractive long-term outlook.
The best growth stocks to buy now: 3 ways to make growth investing work for you
Look for growth stocks that have ownership of strong brand names and an impeccable reputation. Customers keep coming back to these businesses and will try their new products.
The best growth stocks to buy now should have the ability to profit from secular trends. These trends outlast ordinary business booms and busts, because they reflect ongoing social change. Rising environmentalism and social responsibility are just two examples of secular trends.
Growth stocks should not be confused with momentum stocks. Momentum stocks are typically stocks with prices that are moving faster than the market on anticipated faster-than-average earnings growth. Momentum investing theory can be summed up as “buy high, sell higher.” The trouble is that when the stock’s rise falters, momentum investors also try to get out as a group, but there are never enough buyers. This can lead to violent price fluctuations—and often big losses.
Bonus Tip: For aggressive investors, “hot” growth stocks should make up just a small part of your portfolio
If a “hot growth stock” seems to check out reasonably well, you may want to take a chance and add the stock to your portfolio.
If you do buy shares, it’s still a good idea to keep your portfolio well-diversified across most if not all of the five main economic sectors. That’s especially so if the “hot growth stock” is in either of the two most volatile sectors, Manufacturing & Industry, or Resources & Commodities.
After that, you need to monitor the stock much more closely than your other holdings, because of the speculative nature of your investment. You’ll need to make a lot of difficult sell-or-hold decisions as the stock’s fortunes wax and wane. If it rises faster than your other holdings, you’ll need to decide if you’ll sell some from time to time or if you’ll let it represent an ever-growing portion of your Successful Investor portfolio.
Bad growth stock picks can lead to significant losses. They may also grow slower than expected. How long have you invested in a growth stock before feeling frustrated by its slow growth?
What have you found are key elements of a successful growth stock?
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