GROWTH INVESTING

Let us see the second type of Investment method called as “Growth Investing”. Is there any person disliking growth ? But at the same time, like expecting growth, risk is also found. 

In practice, we could have seen, some young couples, marrying with flimsy family 
background, either Arranged or Love marriage. Being frugal and planned  i.e. in Rs.100/- income , saving of up to 30 to 50 % with 1 or 2 times a day alone taking moderate food. 
In years course, they may be able to buy a Residential plot, later building their own home 
with all comforts. Similar stories can be heard everywhere.  

A strategy whereby an investor seeks out stocks with what they deem good growth 
potential. In most cases a growth stock is defined as a company whose earnings are 
expected to grow at an above average rate compared to its industry or the overall market. 

Growth investors often call growth investing a capital growth strategy, since investors 
seek to maximize their capital gains.

Although it is often said that growth investing and value investing are diametrically 
opposed, a better way to view these two strategies is to consider a quote by Warren 
Buffett: "growth and value investing are joined at the hip". Another very famous investor, 
Peter Lynch, pioneered a hybrid of growth and value investing with what is now commonly referred to as a "growth at a reasonable price (GARP)" strategy.

In the past 15 – 20 years the examples of growth stocks are Reliance Industries, Infosys, 
Wipro, Cipla, B.H.E.L., L&T,O.N.G.C.,HCL Technologies, TCS, etc…can be said. 
Even today in India’s rapidly growing Economy , smaller organizations of today, expected 
to grow large in future years, as larger organizations are called as Growth stocks. 

A new investor while watching each small company, may think as growing as INFOSYS tomorrow. But all companies may not grow as INFOSYS. So while selecting these type of stocks, the investors must be cautious. 

Rapidly growing companies may face sudden problems. While happening they have to overcome the situation with strong Administrative capacity. When compared to value companies, in growth companies, risk will be more, and rewards, may also be more.   

How to select the growth company Stocks ? 

A stock is considered a growth stock when it’s growing faster and higher than stocks of 
other companies with similar sales and earnings figures. Usually, you compare the growth 
of a company with growth from other companies in the same industry or compare it with 
the stock market in general.

If a company has earnings growth of 15 percent per year over three years or more and 
the industry’s average growth rate over the same time frame is 10 percent, then this stock 
qualifies as a growth stock. A growth stock is called that not only because the company 
is growing but also because the company is performing well with some consistency.

Here are some other important things to look at when considering growth stocks:

Fundamentals :-
This refers to the company’s financial condition and related data. When investors do fundamental analysis, they look at the company’s fundamentals: its balance sheet, income statement, cash flow, and other operational data, along with external factors, such as the company’s market position, industry, and economic prospects. The company should have consistently solid earnings, low debt, and a commanding position in the marketplace.

Leaders and mega-trends :- 
A mega-trend is a major development that has huge implications for most (if not all) of 
society and for a long time to come. A good example of a mega-trend is the aging of 
America. Federal government studies tell us that senior citizens will be the fastest-growing segment of our population during the next 20 years. How does the stock investor take advantage of a mega-trend  By identifying a company that’s poised to address the opportunities that such trends reveal. A strong company in a growing industry is a common recipe for success.

Strong niche :- 
Companies that have established a strong niche are consistently profitable. Look for a company with one or more of the following characteristics:

A strong brand :-
Companies that have a positive, familiar identity — such as Coca-Cola and Microsoft — occupy a niche that keeps customers loyal.

High barriers to entry :-
United Parcel Service and Federal Express have set up tremendous distribution and delivery networks that competitors can’t easily duplicate.

Research & development (R&D) :-
Companies such as Pfizer and Merck spend a lot of money researching and developing new pharmaceutical products. This investment becomes a new product with millions of consumers who become loyal purchasers, so the company’s going to grow.

Given below based regulations clearly identifies which are the growth stocks !  

1)  In the past 5 / 10 / 15 years turnover, Net profit, E.P.S similar factors must have attained     better growth.( For example more than 20 % )The stocks other than that sector growth must be large ( Minimum more than 10 % ) 

2)  Not only in previous years, but also in forthcoming 5 / 10 / 15 years the companies, Turnover, Net profit, E.P.S the said growth is possible in forthcoming years. The company connected with the sector, Opponents, and Honest Management particulars whether present must also be Analyzed.

3) Expenses within the Marginal limit / In the coming years is it possible must be go through. 

4) Excellent Management sustainable, Promoters not in an intention to go short cut to increase their wealth.

5) Whether Possibilities found in the next 3 or 4 years, for the stock prices to be Doubled, could be Analyzed.

6) Whether R.O.E ( Return on Equity ) is upgrading ? R.O.E = Net Profit / Investors Capital.

Alright what are the characteristics of Growth stocks ?   

Six Characteristics Of Great Growth Stocks
The market’s upside action this week, in the wake of the Fed’s interest rate cut, has been unusually bullish by many technical measures. But I’m not going to write about that today. I’ll leave that to ace technical analyst Mike Cintolo, who weighs in on Monday. Until then, suffice it to say that you should be heavily invested now. But invested in what? Great growth stocks. We focus on six fundamental characteristics of great growth stocks.

These aren’t just any six characteristics. These are the six fundamental characteristics that correlated most highly with profits in a ten-year study of stocks bought for the Model Portfolio 
of the Cabot Market Letter.

In other words, after ten years of investing (1997 - 2006) these are the factors that were best at bringing us profits. Might another ten years bring a different result? I’ll let you know in ten years. Until then, however, I feel pretty good about these. So here they are, with the very best criteria - in the time-honored tradition of lists - coming last.

Huge mass markets ;-
This one is well known to many investors. The more potential customers there are for a product or service, the greater the possibility that the business will be a success and the greater the possibility the investment will be a success. But how big is a mass market? Sometimes it’s hard to know where to draw the line; there is no right answer. Choosing between a manufacturer of curling equipment (that sport where they slide the rock down the ice) and a manufacturer of shoes, I’d go with the shoe manufacturer. Its mass market was just one reason we added Crocs (CROX), the maker of “funny-looking plastic shoes” to Cabot Market Letter’s Model Portfolio nearly a year ago.

Market dominance / barriers to entry :-
Patents often provide a great barrier to entry. And if there’s no one else providing competition, you can be sure those patents are strong. Intuitive Surgical (ISRG), for example, has been a great winner, partly because it has no competitors. As for market dominance, this can be harder to measure. Game Stop (GME), for example, is by far the biggest retailer of video games in the U.S. But with just 23% of the market, is it dominant? Intelligent minds can disagree.

Accelerating earnings growth :-
There’s no ambiguity here. If a company’s earnings growth rate (measured by comparing the earnings of one quarter to the earnings of the same quarter in the prior year) increases for two quarters in a row, growth is accelerating. In general, faster growth is better growth, and a company whose earnings growth rate is accelerating (whether it’s due to increased revenues or more efficient operations) is becoming an increasingly attractive investment. My perception is that acceleration tends to be under-appreciated by investors (some just don’t see it), so buying when you first recognize it usually works out very well.

Triple-digit revenue growth :-  
In my experience, companies growing revenues at triple-digit rates (100% or better) tend to be small and less well known; thus they’re ripe for buying by institutions as they grow. Almost all solar power companies were enjoying triple-digit revenue growth (100% of better) earlier this year when their stocks were hot … and most still are. When Google came public it was growing at a rate of 125%, now it’s slowed to 58%, while Chinese Baidu (BIDU), which is hitting new highs, is growing at 120%. Crocs (CROX) is growing at 162%. Wynn Resorts (WYNN) is growing at 152%. And little China Security & Surveillance Technology (CSCT), which I’ve mentioned here before and which had a nice jump last week, is growing at a rate 
of 550%!

High profit margins :- 
Software companies tend to have very high margins because they deal in code that costs nothing to ship or store, while iron ore companies tend to have very low margins. In recent decades, high-margin stocks have trounced low-margin stocks. But with the recent strength of companies dealing in steel, potash, coal and other bulk commodities, the times may be changing. Jim Rogers, who for years has been trumpeting the new global bull market in commodities, certainly thinks so.

Excellent, innovative management :- 
Henry Ford, Thomas Watson, Ray Kroc, Jack Welch, Walt Disney, Akio Morita, 
Sam Walton, Bill Gates, Larry Ellison, Steve Jobs, Meg Whitman, Jeff Bezos, Martha Stewart, Craig Venter and Dennis Kozlowski (for a while) were (and are) all great managers who led their companies to success by thinking differently. Admittedly, there is no hard and fast measurement of management talent, but because this is the most important characteristic of 
all - and I think it always will be - it’s worth thinking about very hard. Most managers are nowhere near as good as those legends. But when you find a top manager - especially one 
with a record of prior successes - you should give him or her a little extra leeway. Top managers have a way of overcoming obstacles through a combination of vision, enthusiasm and leadership.

These would be straight opposite to Value stocks. Being with High P/E, P/BV, the profits yielded will again be reinvested. Dividend will be very low. These companies be I.T or Bio Technology related now Economical based companies would be (or ) in Highly growing countries / regions / sectors will be taking place. Due to these companies excellent growth net profit may be going on increasing. So that the stock prices may also be hiking. Investors investing in these companies probably consider for Capital Appreciation.    

Thomas Rowe Price Junior can be called as the Growth investing Technic Priest. In 1937, in the name of Rowe Price Associates, started his company. The stocks he purchased was called as “ Rowe Price stocks” by the market. Efficient Management, Better sectors, High Dividend and Profit, beating the Inflation, countries Economy, More growth stocks he invested. 

Moreover, while selecting for growth stocks, he has to come through some characteristics. They are Excellent analyzing facility, less opposition, very low Government restrictions, very low total salary( Good Salary) Minimum 10 % returns, Higher profit ratio, more E.P.S growth etc….. 

Personalities like Warren Buffett, distinguished that growth investing Vs Value investing contains no great difference. According to him value is one Leg, and Growth is another Leg, both are joining in Hip.  

Peter Lynch, is another popular American investor. He has worked in “Fidelity Investment” as Fund Manager for long time. He has written many books ( One up on Wall Street, Beating the Street, and Learn to Earn )are most popular. He united those value and growth investing and termed as GARP ( Growth at Reasonable price ) a new Technic popularly.  

These type of investors choose the stocks based other than the market growth at the same time, Low value stocks. While searching, not reaching the End of both types, instead growth as well as Low P/E stocks. 

While selecting those type of investment method being various scalar factors present 
“PEG” ( Price / Earnings to (EPS) growth) ratio is used more. If it is lower than one then it 
is a better investment. For example the stocks you have selected P/E is 5. That Organizations past 5 years E.P.S growth yearly 10 % then PEG is ( 5/10=0.5 ) In this example PEG Ratio being lower than 1, this can be considered as a better investment.