Follow our guidelines and you’ll find more top growth stocks
If you want to find the top growth stocks and have them be profitable for you for decades, you should follow our tips.
When it comes to building a growth investment strategy, don’t let sound bites and nebulous predictions warp your stock trading decisions. Instead, minimize your portfolio risk by following our three-part strategy: Invest mainly in well-established, dividend-paying companies; spread your money across most, if not all, of the five main economic sectors; and avoid stocks in the broker/media limelight.
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.
Avoid focusing only on buying low and selling high when investing in the top growth stocks
It’s easy to think that stock prices vary between predictable extremes of high and low. If this was so, all you’d have to do is buy low and sell high to make money. In fact, it’s investor attitudes that vary widely, between greed and fear.
When greed dominates investor thinking, investors focus on profits they can make, and they downplay their fear of loss. This leads them to take more on risk. When risk backfires, costly surprises follow.
On the other hand, when fear dominates, investors focus on and exaggerate risks. This can stop them from accepting sensible risks. Many stay on the sidelines until greed takes over again, and risk is high. Then they jump into the market.
When you aim to buy low and sell high, you can wind up doing just the reverse. You may spend too much time out of the market when values are attractive. You may spend too much time in the market when risk is high. You may compound your error by focusing on risky stocks, in hopes of making up for lost time and missed profits.
Dividend growth stocks are among the top growth stocks and a welcome bonus—but focus on quality
Dividend growth stocks offer investors a measure of security. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake—either the company has the cash to pay them or it doesn’t.
However, it’s important to avoid judging a company based on the fact that it pays a dividend. Nor should you be tempted solely by a high dividend yield (the percentage you get when you divide a company’s current yearly payment by its share price).
That’s because high yield can sometimes be a danger sign rather than a bargain. For example, a dividend stock’s yield could be high simply because its share price has dropped sharply (since you use a company’s share price to calculate yield). That drop may signal investor anticipation of coming bad news, including a dividend cut.
As well, you should always remember that while growth stocks hold the potential for greater gains than conservative selections, they typically expose you to a higher level of risk—even if they are dividend-paying stocks.
That’s why we look beyond dividend yield when making investment recommendations, and look for dividend stocks that have an established business and have at least some history of building revenue and cash flow.
Two fundamental factors that will help you pick top growth stocks
Know the difference between momentum stocks and growth stocks: It’s very easy to confuse growth stock picks 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 it 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.
Add value stocks as well to 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. Some technology stocks, for instance, start out as growth stocks and transition into value stocks.
A growth stock can be a top performer while the company is expanding. 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.
How do you feel about buying low and selling high in regards to top growth stocks, as well as other investments? Share your thoughts with us in the comments.
Learn everything you need to know in
'How to Find the Best Growth Stocks'FREE Special Report from The Successful Investor.
Canadian Growth Stocks:
CGI Group, CAE Inc., Fortis Inc. Stock and more.
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