Growth Stocks

5 Key excerpts on "Growth Stocks"

• 

  eBook - PDF

  Wiley Pathways Personal Finance

  Managing Your Money and Building Wealth

  • Vickie L. Bajtelsmit, Linda G. Rastelli(Authors)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  Stocks are often clas- sified based on whether the company tends to reward its investors primarily with current income or with capital gains. An income stock is one that pays investors a regular dividend rather than concentrating on reinvestment of profits. Because these stocks pay most of their profits in dividends instead of reinvesting for future growth, there is usually less capital appreciation. The relative certainty of a dividend cash flow stream makes these stocks attractive to more conservative stock investors and to those who desire a regular income stream, such as retirees. A growth stock is one that compensates investors primarily through increases in the value of the shares over time. Stocks issued by younger com- panies that are experiencing high growth in earnings and assets are likely to be classified as Growth Stocks. During this high-growth phase, firms tend to rein- vest profits to meet capital needs rather than distribute profits as dividends. Many of these types of stocks are traded in the OTC market. Obviously, the attraction of Growth Stocks to investors is the opportunity to share in the future profits of these companies as investments in growth eventually pay off. Growth companies expose investors to uncertainty because there are no guarantees that today’s reinvestment will translate into tomorrow’s growth in value. Young investors are more likely to focus on growth investments, while investors who want investment income and stability are less inclined to do so. Some Growth Stocks are highly risky—their prices fluctuate widely, and they have very uncertain future prospects. During the 1990s, many internet companies issued stock despite the fact that they had failed to show any profit. In spite of the uncertainty, investors flocked to buy these stocks, and a few of the companies succeeded.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Investing in Stocks For Dummies

  • Paul Mladjenovic(Author)
  • 2023(Publication Date)
  • For Dummies

    (Publisher)

  This approach is especially important if your investment goal is growth. Becoming a Value-Oriented Growth Investor A stock is considered a growth stock when it’s growing faster and at a higher rate than the overall stock market. Basically, a growth stock performs better than its peers in categories such as sales and earnings. Value stocks are stocks that are priced lower than the value of the company and its assets — you can identify a value stock by analyzing the company’s fundamentals and looking at key financial ratios, such as the price-to-earnings (P/E) ratio. (I cover company finances and ratios in Chapter 6.) Growth Stocks tend to have better prospects for growth in the immediate future (from one to four years), but value stocks tend to have less risk and steadier growth over a longer term. Over the years, a debate has quietly raged in the financial com- munity about growth versus value investing. Some people believe that growth and value are mutually exclusive. They maintain that large numbers of people buying stock with growth as the expec- tation tend to drive up the stock price relative to the company’s current value. Growth investors, for example, aren’t put off by P/E CHAPTER 9 Investing in Stocks for Long-Term Growth 143 ratios of 30, 40, or higher. Value investors, meanwhile, are too nervous to buy stocks at those P/E ratio levels. However, you can have both. A value-oriented approach to growth investing serves you best. Long-term growth stock investors spend time analyzing the company’s fundamentals to make sure that the company’s growth prospects lie on a solid foundation. But what if you have to choose between a growth stock and a value stock? Which do you choose? Seek value when you’re buy- ing the stock and analyze the company’s prospects for growth. Growth includes, but is not limited to, the health and growth of the company’s specific industry, the economy at large, and the general political climate (see Chapter 12).

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Market Domination!

  The Impact of Industry Consolidation on Competition, Innovation, and Consumer Choice

  • Stephen G. Hannaford(Author)
  • 2007(Publication Date)
  • Praeger

    (Publisher)

  3 / Grow or Die ALL BUSINESSES ARE EAGER TO GROW. In particular, all public corporations, those with shareholders, are under constant pressure to grow. Why can’t everybody be happy with the status quo? The answer may be obvious to many readers, but I know from conversations with intelligent people that many haven’t really thought these ideas through. Furthermore, much of the writing in the business pages that tries to explain corporate moves seems to ignore the motivations for company growth and how they affect the behavior of companies. Bear with me while I explain the basics. RETURN TO INVESTORS All publicly held companies have as their main purpose a return to their investors. The firm may be nominally in the business of delivering packages, manufacturing automobiles, or accounting, but, in the deepest sense, their busi- ness is increasing the wealth of its stockholders. There are two standard ways for public companies to reach that goal: either by returning cash payments to stockholders (dividends) or by increasing stock prices. Of course, many companies combine both approaches, but we will treat them here as separate paths. The dividend path is usually pursued by companies in mature, steady busi- nesses, where the opportunities for growth are limited but the cash flow is good and reliable and the risk is low. Stockholders are kept happy because they receive regular quarterly payments. The classic examples of this approach include utilities and some consumer products, such as food and tobacco. The pressure on such companies is great to keep the dividend steady, in spite of fluctuations in the business cycle or the cost of raw materials. For all other companies, the price of each individual stock reflects its poten- tial future prospects—that is, the hope that each buyer will be able to sell the stock for a higher price than they paid for it.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  T. Rowe Price

  The Man, The Company, and The Investment Philosophy

  • Cornelius C. Bond(Author)
  • 2019(Publication Date)
  • Wiley

    (Publisher)

  But what are the great growth companies of today? For most investors who are working hard in their jobs, or who just don't have the time or inclination to do all the required homework, the best answer is to stick to the above mutual funds and let the experts discover these companies. For those with the time and inclination to begin to manage a portion of their own portfolios, after investing perhaps 60 percent of their assets in mutual funds, and who have absorbed and believe in the lessons of this book, we would suggest that they look carefully at the portfolios of the mutual funds that have won the Morningstar annual awards. An investor might get an idea of which companies these managers believe to be the best Growth Stocks by examining their top ten holdings. Because these positions are subject to change from actions of the portfolio manager, it would be wise to check in each quarter to see if all of these companies are still on the list.

  In managing a portfolio, it is well to remember Mr. Price's advice to gradually take profits, as a company becomes a large percent of a portfolio, and certainly when it becomes excessively overvalued. His goal was to recover his original capital by selling a portion of such holdings as they rise and depositing the funds in a quality income fund mentioned above. He would retain the remaining shares as long as the company remained a growth stock. Bob would politely disagree. He does not sell because of temporary overvaluation. He points out that the best companies do grow faster than the pack. By allowing this to occur without any pruning, the best stocks automatically grow relatively larger, creating faster overall growth for the portfolio. Moreover, there are no capital gains to pay. Having personally experienced, as president of the Growth Stock Fund, the long slow recovery of Growth Stocks from their overvaluation in the early 1970s, I am probably more in Mr. Price's camp. We leave the reader to make the choice between the two strategies.

  To build a retirement account over several decades, an interested investor with extra time might want to become more venturesome. He or she might begin by adding shares of companies that are familiar through a job or from a consumer standpoint, again using the basic concepts for picking growth companies discussed in Chapter 9 . Financial data can be obtained online or through a subscription to a service such as Value Line. Managements often speak at investment forums around the country or at annual meetings, where they can be individually questioned. Fortune

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  The Stock Market

  • Rik W. Hafer, Scott E. Hein(Authors)
  • 2006(Publication Date)
  • Greenwood

    (Publisher)

  Still, this difference in investment performance is small in magnitude and it is widely known that it does not always hold up. For instance, some say the superior performance of small cap stocks is driven by a short period of time in the early 1980s. Since the 1990s witnessed large cap stocks doing better than small cap stocks, there probably is little to recommend one strategy over the other. Rather, it is probably wise to diversify, owning some large and small cap stocks, as well as middle size or mid-cap group. GROWTH VERSUS VALUE Another contrast in investing styles is the growth as opposed to value strategies. Growth strategies focus on investing in companies that have the greatest potential for gaining higher earnings in the future. Here, the issue of what the stock is currently selling for is not the focal point. Rather, attention turns to finding those companies that have the greatest potential for im- proving profitability in the future. In addition, the fact that a company is or is not paying out much in the way of dividends also is not that important to a growth investor. A growth strategy is to find such companies and buy their stock with the expectation that they will experience substantial increases in their stock price over time. A good starting place is to look at recent earnings, in particular, comparing today’s earnings to the recent past. To be identified as a growth stock, one would need to see substantial increases in the com- pany’s earnings, along with the expectation that such earnings growth will continue in the foreseeable future. Value investment strategies, in contrast, focus first and foremost on the current price of the stock. This strategy seeks to find stocks that are ‘‘cheap’’ with the expectation that the company will soon realize its full potential and their stock price will appreciate. In addition to analyzing the current stock price, a value strategy emphasizes the dividends that a business pays out.

  Sign up to read

  Learn more about book