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The Definitive Guide to Growth Stocks

How to Search for Tomorrow's Stock Market Winners Today

We went back and researched the best stocks of our generation (including the ones shown here) to see what made them great. 

Here’s what we discovered: History repeats itself in the stock market.

Characteristics of top stocks are often the same, decade after decade. 

Here is our list of characteristics good-to-great stocks often possess during their prime, what to buy and when to sell:

Profit Growth Leads to Stock Growth

Our research points to profit growth driving stock growth. To locate stocks that grow the fastest, look for companies growing profits rapidly.

How to Value a Stock

Owning a stock is like owning part of a business. And businesses often sell for a number of years worth of profits, also known as the multiple or in stock terms the P/E ratio.

How to Value the Stock Market

The S&P 500 is commonly referred to as the stock market.  Like a private business, the “stock market” has a “multiple” too, which is usually 16 to 20 times the S&P 500’s annual profits.

When Stock Growth Equals Profit Growth

Stock growth can equal profit growth. If a company makes $1 a year in profits and sells for 20x profits, its a $20 stock. If someday profits reach $2 and the “P/E “is 20, the stock would be $40.

The Best Stocks Are No-Brainers

The best stocks are often easy to find. One of the best no-brainers was Walmart (WMT), which grew profits every year from 1974 to 2012, from $0.002 to $5.02.

Buy Stocks With Certainty

Stocks with certainty are companies you can depend on and are often in sectors that don’t get pinched in recessions. Try to be certain profits aren’t about to decline.

Buy Stocks With Consistency

The best stocks grow profits consecutively every year. They provide consistent growth, year-in year-out Each time annual profits are up, the company is proving its success.

Buy Stocks With Growth Opportunity

Growth opportunity is the ability to compound sales over a long period of time. For a stock to compound in value over-and-over again, it has to grow sales and profits exponentially.

Buy Stocks in Hot Sectors

The best stocks often come from the best sectors because there is a revolution happening (usually technological). In new industries profits are easy because there’s not much competition..

Buy Stocks With Catalysts

Explosive profit growth is usually caused by a company having a profitable catalyst. Catalysts are unique products or services that transform an industry.

Buy Stocks that Beat the Street

Some of the most powerful stock moves happen when a company rides a new catalyst far beyond expectations and the company beats analyst expectations, also known as “beating the street”.

Buy Stocks Below the Radar

Younger companies often have an easier time growing profits rapidly. It’s often the small unknown stocks which can lead to some of the biggest gains.

Buy Stocks with Dominant Franchises

The best stocks often come from the best sectors because there is a revolution happening (usually technological). In new industries profits are easy because there’s not much competition..

Buy More Stocks

Explosive profit growth is usually caused by a company having a profitable catalyst. Catalysts are unique products or services that transform an industry.

 

Don't Expect Consistent Returns

Even if a company delivers consistent profits, the stock won’t produce consistent returns. The reason is the P/E ratio is an arbitrary number of what investors feel the stock is worth at that time.

Stock Price Doesn’t Matter

Investors often caught up in a stock’s price, thinking a high stock price means the stock’s too expensive. That just isn’t true. Focus on the profit growth, and the P/E, not the stock price.

Don’t Buy Commodity Stocks

What not to buy? Anything commodity related, as you’re dependent on the commodity price. This includes semiconductors. The reason is there are so many competitors they have to cut prices.

Sell When Profits Decline

When company profits decline, it could be a sell signal. For example, if a company made $2 and sold for 20x profits it would be a $40 stock. What might the stock be if it only $1 the following year?

Sell When Profits Miss Estimates

When a company misses profit estimates, it could mean business is weakening, and it might be time to sell. The company could miss next qtr as well. Declines in future estimates are also a sell signal.

Sell When the Stock is High

When I say high, I mean the P/E not the stock price. If the P/E ratio suddenly gets higher than historical standards with no new catalyst on the horizon, it could be time to take profits. 

Sell When The Market is High

When company profits decline, it could be a sell signal. For example, if a company made $2 and sold for 20x profits it would be a $40 stock. What might the stock be if it only $1 the following year?

The Definitive Guide to Growth Stocks

How to Search for Tomorrow's Stock Market Winners Today

If you’re new to stocks or want to sharpen your stock picking skills, you came to the right place. Our Definitive Guide to Growth Stocks is where we show you how to indentify top stocks.