Topic: How To Invest

Here’s how to find the best growing stocks for maximum portfolio returns

Investing in the best growing stocks will put you in a position to make significant gains, but it comes with risk as well. Follow our tips to make smarter—and safer—picks

High-quality growth-oriented stocks can be worthwhile additions to most well-diversified portfolios. Although these best growing stocks can be highly volatile, they can make good long-term investments.

There’s room for growth stock investing in your portfolio, but make sure you follow our TSI Network three-part Successful Investor strategy for your overall portfolio.

Understand these characteristics of the best growing stocks so you can make informed investment choices

Top growth stocks have hidden assets that can make a big difference long-term. Hidden assets can make a huge difference in growth stocks. They are also a key part of our Successful Investor approach. One example of hidden assets is real estate.

Another example of hidden assets is research and development spending. Technology companies spend large sums of money developing new practices and technologies that can change the world of the future. This research may not pay off for decades, but if you’re a savvy investor, you can see via their income statements what companies spend on research and development.

Top growth stocks should be free of high debt. When you’re researching growth stocks, you need to know how much debt they’re holding. Growth companies with a lot of debt have a hard time recovering from an economic downturn.

The more manageable the debt, the better. When bad times hit, debt-heavy companies often go broke first. That’s especially true for ones that also keep trying to allocate part of their cash flow to paying dividends.

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Top growth stocks will typically be multi-product companies. Technological advances, for example, come in spurts and tech companies tend to leapfrog each other. Focus on tech growth stocks with a variety of existing or soon-to-be-released products and avoid one-hit wonders. 

Growth stocks to invest in often focus on up-and-coming technologies. For this, you need to know how technology is changing. Read and absorb the latest tech blogs. Learn about the technologies that are exciting tech companies. For instance, ever-increasing use of wireless devices is raising demand for faster and faster, reliable wireless networks such as 5G. 

Illiquid or “thin trading” stocks are rarely good examples of the best growing stocks 

You compound your risk if you invest in a promising junior that is a “thin” or illiquid trader. When a stock is a thin trader, it doesn’t take much buying or selling to influence its price. So if just one important investor decides to sell, it can cause an abrupt stock-price slump. This can spark a cascade of selling and a collapse in the stock’s price. The resulting stock downturn can scare off other potential investors. This can make it impossible for the formerly promising junior to raise additional funds when it needs them.

Investors in start-up companies also face one overriding, continual risk: it’s easier to launch a promising company than to create a successful business. That’s why only a minority of fast growing stocks ever go on to significant success.

Avoid selling your best growing stocks too early and keep gains in your portfolio

It’s all too easy to sell a stock that looks like it’s headed for a downturn, only to buy another that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

You can always find a reason to sell. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless. This is a good thing. After all, you can only buy a stock if somebody who owns it wants to sell.

Before you act on a selling rationale, take a broader look. Consider facts about the stock, and about your investment goals and temperament. If the selling rationale makes sense and you find additional good reasons to sell, then selling may be the right thing to do. But it’s always a bad idea to sell a good stock for trivial or transitory reasons.

Minimize your risk with the best growing stocks by using our advice, in addition to our Successful Investor approach mentioned below

When we look for aggressive investments, we zero in on companies that have established a business and have at least some history of building revenue and cash flow. We also look for companies that stand to benefit as the economy continues to improve, and have proven management and long-term growth plans.

Because aggressive stocks expose you to a greater risk of loss, we recommend limiting your aggressive holdings to a limited part of your overall portfolio.

Use our three-part Successful Investor approach to discover the best stocks to invest in

  1. Invest mainly in well-established, mostly dividend-paying companies.
  2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities).
  3. Avoid or downplay stocks in the broker/media limelight. 

Are growing stocks a major focus of yours, or do you prefer to find stocks that are already established?

What characteristics do you look for in growth stocks?

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