In the many years I have been delivering training in investment strategies and techniques, the advantages of including some pure growth stocks in with your yield-producing stocks, has been truly evident. As research shows, the sooner you begin accumulating your portfolio, the more potential for growth stocks to considerably increase your capital gain.
When looking for growth stocks that deserve to be in your portfolio, there are some essential characteristics which make them more attractive:
- Revenue growth – sales revenue which is increasing faster than GDP indicates a growing market, and an increasing share being gained from the company
- Economic leverage – earnings growth should be equal or greater than revenue, indicating an increase in internal efficiency
- Sustainability – whilst short term growth may be present, it should be able to be continued over the longer period with a product in demand
- Customer perception – for the product and company growth to be sustainable, the customer’s impression of the product must be very strong – for example the burgeoning popularity and growth of four-wheel drive vehicles should sustain growth of companies which service this market for some time
The key to success in this area is to find companies which can grow regardless of the economic cycle, so research into the product and earnings can pay off to gain consistent earnings. Good growth companies inevitably turn into value propositions.