Growth Stocks

Growth stocks are the glamor investments on Wall Street.

They are the reason all those talking heads on CNBC have jobs and what makes Jim Cramer ramble on as if he’s just chugged five Red Bulls. (Maybe he has.) Growth stocks often outpace the market, and the best ones can earn triple-digit returns in a short amount of time. So it’s no surprise they generate so much excitement and endless chatter.

Of course, there’s a caveat to investing in growth stocks. Unlike time-tested dividend growers or bargain-basement value plays, growth stocks carry plenty of risk. The companies are less mature, often are subject to greater potential competition, and typically don’t pay a dividend. Thus, the stocks can be very volatile, especially around earnings season.

For many investors, however, the risks of investing in growth stocks are worth the potential rewards. Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX)—all of them started off as growth stocks before they became some of the market’s most coveted stocks. Those who got in early earned triple-digit, even quadruple-digit, returns.

There are several keys to finding the right growth stocks:

  • Invest in fast-growing companies. It’s a rather obvious prerequisite. But it’s important to know what fast-growing means. It means investing in fast-growing industries, where revolutionary ideas and services are being created. Any little-known stock that provides a product that is essential to that budding industry makes for a good growth stock. Rapid sales and earning growth is seen among most big winners before their stocks take off.
  • Buy stocks that are outperforming the market. Companies can promise all kinds of financial growth. But is that growth potential translating to a rising share price? The best investing tips come from the performance of the stocks themselves; a rising stock tells you the smart money is accumulating shares.
  • Use market timing. Never underestimate the power of the market to move stocks. You don’t want to invest in a growth stock just as the market is topping out, as three out of four growth stocks will follow the trend of the overall market. If you’re in a bull market, you can afford to be aggressive in buying stocks that are more speculative.
  • Be patient. Not every growth stock will advance exactly when you want it to. Very few will, in fact. Even Apple had plenty of fits and starts on its way to becoming the most valuable company in the U.S. In the investment world, time is your friend. If you get out of a stock too early, you may miss out on some big gains months down the road.

Growth stocks were the basis upon which Cabot Investing Advice was founded in 1970. Our founder, Carlton Lutts Jr., gave up a career in engineering to pursue his passion for stock selection and market timing.

Nearly half a century later, we offer much more than growth investing advisories. But growth stocks—and helping individual investors earn big profits from them—are still at the heart of what we do via our flagship newsletter, Cabot Growth Investor.

Investing in growth stocks can be tricky. Finding a hidden gem that has yet to be fully discovered by the market is exciting, but requires lots of discipline to handle it correctly. Look for up-trending earnings growth, improving profit margins, and booming industries. If done right, investing in growth stocks can be both highly satisfying and highly profitable.

And if all else fails … we’re here to help!

Featured Stock Picks

Each write-up features commentary on the picks from one or more of our expert stock market analysts, as well as company details and a stock chart.


A Classic Climax Top: Here Why I Think Ambarella (AMBA) has Topped

You can’t just have a good offense if you’re going to be successful in the market. You also need a good defense, meaning you have to be able to identify when a stock’s major advance has ended and you should book profits. »

Why Investors Are Gobbling Up Fast Food Stocks

Amid this relentlessly sideways market, fast food stocks have been a surprising outlier. Here's why that outperformance shouldn't be a surprise. »

Lots of Set-Ups Among Growth Stocks

I often write that “XYZ stock is showing a good set-up” or “is set-up nicely.” What exactly do I mean? That’s a question I’ve gotten a few times during the past couple of weeks, so I thought I’d add some color to it here.»

Stocks for Retirement- Growth Stocks

These tools are based on what has worked over and over again in the past 50 years.»

When to Sell Stocks:When Growth Stocks Go Bad

No matter how good a stock has been to you, it's vital to remember one absolute truth—all leading stocks are going to top.»

Winning Stock Strategies

There are several general strategies you can use to manage your winning stocks. Here is a range of possibilities to consider. »

Stock Picks

Norwegian Cruise Lines

Norwegian Cruise Lines (NCLH) is one of the “big 3” in the cruise industry. There’s a real growth story here thanks to a steady expansion in the firm’s ship count, along with an acquisition last year that gives it exposure to the high end of the market.

Constellation Brands

This maker of wines (Mondavi, Clos du Bois, Ravenswood), beer (Corona, Modelo and TsingTao) and spirits (Svedka, Black Velvet and Paul Masson) gets 89% of its revenues from the U.S. and 11% from Canada, so the strong dollar isn’t hurting.

Cheetah Mobile

My stock pick this week is a Chinese stock that was featured in the Other Stocks of Interest section of Cabot Growth Investor. (It’s also in the portfolio of Cabot China & Emerging Markets Report).

Cabot Wealth Advisory

A Great Vacation Stock

By Timothy Lutts on July 06, 2015

Having just returned from vacation, I’m thinking of the millions of baby-boomers who are spending more and more money on leisure travel, particularly on cruises, an industry that is dominated by a few big playersRead More >

Three Simple Options Strategies to Hedge Your Portfolio

By Paul Goodwin on July 02, 2015

Markets are used to all kinds of stressful events, and for the past year or so have taken the Greek debt crisis pretty much in stride. Up through last week, what we saw in the market was an unemotional averaging out of all investors’ estimates of the probability of a Greek default and the likely fallout (including Greece’s exit from the Eurozone).Read More >

Three Simple Options Strategies to Hedge Your Portfolio

By Jacob Mintz on July 01, 2015

On Monday, Paul Goodwin discussed the panic that sparked a greater than 2% decline in the markets on Monday. So how do you protect your portfolio from a pit bull and a swarm of bees?Read More >