It’s been proven that growth stocks are the best investments. They are companies that show growth in their financial statements. Each quarters earnings should be compared to last 3 quarters. Each quarter should show more growth than the previous quarters. You are looking for an acceleration of earnings. Earnings should also be compared on a yearly basis as well, and showing acceleration with each consecutive year also defined as “Year over Year” (YOY) growth.
Example of Growth Stocks
Yahoo finance has been a favorite source for many traders, it still is today. Theyt have almost every statistical data on all stocks. It is fairly simple to find growth stock. Looks up the stock ticker symbol in Yahoo finance, then in the left hand column you should see a link called “Key Statistics”. This is where some good information lies. You can determine what are growth stocks just by looking at a few lines of data.
For an example we will look at Apple stock, and analyze the Fundamental characteristics. Notice quarterly revenue growth and quarterly earnings growth. I would consider most growth stocks to have percentages as follows.
20%-29% Satisfactory or Good
30% and 40% Excellent
As you can see, Apple has growth figues in the 82% and 92% range. This is absolutely amazing, very rare, almost impossible. Yet, the figures are true. At the time of this post, Apple is currently trading at $349 a share, and expected to go higher.
Note: Keep is mind that the scale above is relative to a bull market. During the crash, of 2008 the economy was doing so bad, that the highest earnings in most companies per quarter, was around 25%. This would be considered excellent in a recession.
Growth Stocks Show Accelerated Income
We also want to Look at the Income Statement on a QUARTERLY basis. We can see ACCELERATION in Revenues as each quarter progresses. This is another characteristic of growth stocks fundamental performance. Each quarter the number get higher. The company is bringing in more money as each quarter is reported. The March quarter is just a tad less than the December quarter, but this is due to the boost during Christmas sales and a slight slow down after Christmas. (Click image to enlarge)
Analyzing revenues on a YEARLY basis is also essential. Look for ACCELERATION, each year higher and higher Revenue. (Click image to enlarge)
Growth Stocks are Favored By Institutions
I also like to see if the big boys like this stock. The figure is known as “Percentage held by Institutions”. The percentage of shares outstanding held by institutional investors, who are organizations that trade securities with large amounts of money, like pension funds, mutual funds, banks, brokerage firms and charitable trusts. Stocks with large proportion of their shares held by these big boys have higher beta value, and are more volatile than stocks with less institutional ownership. Growth stocks attract big players in the market.
This is important because, these large institutions spend millions of dollars on research into stocks, they really know what is good and what is bad—most of the time. It would be wise to ride their coat tails and pay attentions to what they are buying. I didn’t say buy what they are buying, I said pay attention. Add these stocks to your list of possible breakouts.
Below, we see the “% Held by Institutions” of Apple (AAPL). 70% of the float aka, what’s freely traded on the open market is owned. Meaning that there is a short supply of the stock. The laws of supply & demand state the less supply there is, the more expensive things get. This is what creates volatility, or that spike in price action. Stocks like this rise violently, this is what we want. High Volatility in trading.
The Bottom Line—-We want to make sure the companies we trade or invest are making LOTS of money. All this can be found on Yahoo.com free.
Growth Stocks are Found In Leading Sectors
We also want to concentrate our analysis on the hottest sectors of the market. For example, at the time of writing this post the Technology sector i.e. groups stocks like Google (GOOG), Research in Motion (RIMM), Apple (AAPL), and thousands of others are in the Technology sector. Our job is to find the hottest sector, then narrow our search to the hottest stocks in those sectors. That way, we are highly concentrated on robust price action, and maximum profit. The better the stock the higher probability that breakouts follow through, and are less likely to fail.
Determining the hottest sectors is really easy to find. This often comes up when you analyze a stock, then find out who their competitors are, or you may hear in the news what the hottest sector this month, year, or past quarter has been. Pay attention not to jump the gun on a single word of one analyst. Do your homework, check and verify words of the media before acting. So and So says XYZ is the hottest stock? Verify through BREAKOUT THEORY, analyze the chart, and find the breakout price. (Discussed later)
Growth Stocks are More Likely to Trend
You will hear in among many experience traders “BREAKOUTS HAVE A HIGH RATE OF FAILURE”. This is only true to a certain extent. Many day traders, and swing traders, toss fundamental theory out the window and trade strictly on technical price action. It’s important that when trading breakouts, we only trade growth stocks. This is not wrong for their style of trading, however many times they miss the MAJOR MOVE.
By understanding and studying proper BREAKOUT THEORY, you will have a higher success rate in trading breakouts, and catching the MAJOR TREND.
These are the basic fundamental statistics that I look at to find growth stocks. It’s all that really matters. Anytime somebody mentions a stock they like or they are trading I filter it through proper BREAKOUT THEORY, and decide if I want to get involved. It’s always best to see the numbers for yourself.
Other factors in determining growth stocks vary amongst analysts. Other statistical data to consider may be EPS growth, Leading Sectors, and Stock that are leaders within their sector. There are hundreds of other factors to consider, the the key points are made here and that all your really need.
If you’ve made it this far, you now know how much work is ahead of you. Researching growth stocks and analyzing the fundamental data is often time consuming. There are whole departments within financial companies that spend millions of dollars in research and man power to figure what is the next hot stock to buy. To save time try reading stock newsletters for your investment research. Their man power will save time when it comes to building lists. They will find the hottest sectors and sorting through the fundamental data. Find those hidden gems that are going to be the next Microsoft, Google, or Apple.