How Do You Pick Stocks for Growth? It’s a great question. That’s because learning how to pick growth stocks can help you build portfolio profits passively for years to come.
Just think about it:
There’s nothing that feels as good as investing in a company and then watching the stock continue to go up in price, year after year. You have to admit…
It’s fun to watch your portfolio swell in size. And learning to pick growth stocks is probably the best chance you’ll have at building your wealth in this manner. Make sense?
Now in this blog post let’s take a look at some important things to consider if you’re trying to figure out how to pick stocks for growth. So here’s how you can stack the deck in your favour if you’re investing in growth stocks…
Pick Stocks in Growing Industries:
When it comes to picking stocks for growth, you can really tilt the odds in your favour if you invest in growing industries. I think Warren Buffett said it best…
“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
— Warren Buffett
I think this little quote hits the nail on the head. The point is, if you’re paddling against the current you are really making things tough for yourself. Instead of trying to grow in dying industries (like paper or coal) why not focus on the future?
Of course investing in growth stocks requires a bit of optimism. But by focusing on growing industries you can really improve your odds and speed up the time it takes you to learn how to pick stocks for growth.
Buffett has invested in a wide variety of businesses over the years. And he has learned first-hand that when the economics of the industry aren’t in your favour you set yourself up for failure. So there’s no need to re-invent the wheel on this one.
Now let’s turn to the next big mistake most people make when trying to pick stocks for growth.
Look for Companies with a History of Growth:
While you definitely want to focus on growing industries, you also don’t want to rely on blind optimism when buying into fast-growing companies. Personally speaking…
I’ve had the best luck buying growth stocks when finding companies that not only are in a fast-growing industry but also have a strong track history of growing revenue and earnings themselves. While past performance is no guarantee of future success, it is a good place to start.
Lucky for you…
There are lots of places to get historical information on growth stocks. My favourite place to check out is Morningstar.com. They “Key Stats” tab on their quote pages allow you to see 10 years of historical facts.
You can easily see how stocks have grown over the last 10 years. When you find stocks that have been consistently growing revenue, EPS and free cash flow, it becomes a lot easier to have conviction these companies will continue to grow.
On the other hand, if you see companies revenues have not been steadily increasing you better dig deeper to find out why. By the way…
When picking growth stocks, a big part of success is avoiding the worst investments. Looking at historical data and understanding how management has grown the business can really help you determine what kind of growth you can expect.
But how do you know if the growth narrative will play out as expected? You can’t be sure. But there’s one approach worth trying…
Learn to Pick Growth Stocks by Reading Investing Books:
Learning to pick stocks for growth is something investors have been doing for decades. So if you’re curious about improving your ability to pick stocks for growth you might want to read a few specific investing books.
These books can really speed up your ability to pick stocks for growth. And to be honest…
While I’ve read tons of trading and investing books there are a few special ones that stand out in terms of helping you identify and analyze growth stock opportunities.
Phil Fisher’s book Common Stocks and Uncommon Profits is an excellent read for any aspiring growth investor. It’s one of the best books for teaching you what to look for in growing companies. It covers all of the most important aspects. And more importantly, they’ve stood the test of time. So if you’re looking for an actionable and exciting primer in growth investing you’ll want to read this growth stock book
William J O’Neil’s How to Make Money in Stocks is another excellent book to help you capitalize on the opportunity in picking growth stocks. This book is packed with annotated charts and in-depth explanations of specific criteria to look for. The neat thing about this book is that it’s really focused on finding fast-growing companies who also have common stock that are likely to explode in price. It’s a very insightful read for anyone looking to take their growth stock investing to the next level.
So now that I’ve shared some of my tips, I’ve got to ask: What strategies, tools and tactics do you use to find growth stock picks?
And By The Way: If you want to learn more about how to find a profitable approach to the stock market I encourage you to download a copy of my free eBook below. You’ll also get weekly tips and tools to help you improve your approach to the stock market and your ability to pick fast growing companies.