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.


Eggs or Tennis Balls?

Tennis balls are stocks that might drop for a few days when the market is getting hit, but then they bounce right back, just like a tennis ball. Then there's eggs. »

Three Takeaways from the Recent IPO Flurry

Despite the Greece debacle, the IPO market has been on fire of late. Here's what you need to know. »

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. »

On Choosing Growth Stocks: 13 Week Uptrends

Look for stocks that have been in uptrends for at least 13 weeks—there is a momentum component to investing strategy.»

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.»

Crocs: Romance, Transition and Reality

Stock prices are determined by people. People who drive stocks to irrational heights and sell them to irrational depths. Take Crocs for example.»

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

LKQ Corp.

LKQ Corp. (LKQ) currently has a Standard & Poor’s Value Rating of 5 out of 5.

Tesla Motors

If you’re not on board the stock, there’s no rush. Wait for a better entry point in a more constructive market.

Church

Church & Dwight owns the Arm & Hammer, OxiClean and Trojan brands, as well as some smaller, faster-growing brands. But even after a 35% climb in 18 months, Church & Dwight still looks strong and poised for further gains.

Cabot Wealth Advisory

Five Questions to Ask Before Buying a Stock

By Paul Goodwin on September 04, 2015

Stock investors (me included) tend to define ourselves by the stocks we buy. The kind of stock market we’ve had recently—one that has fallen and can’t get up, at least not yet—looks very different to different kinds of investors. One practical outcome of this situation is that when I’m contacted by subscribers asking whether the current dip represents a buying opportunity, I have to ask some clarifying questions first.Read More >

How to Make Money in Any Market

By Nancy Zambell on September 02, 2015

While none of us claim to be market predictors, we’ve all been investing for many years, and have lived—and profited—through lots of market cycles. Consequently, we’ve learned that money can be made in good and bad markets, and most certainly, during periods of volatility.Read More >

Apple vs. Tesla

By Timothy Lutts on September 01, 2015

Back on July 27, in a column titled “Sell Apple,” I told you that Apple, the world’s most loved and most highly valued company, was likely past its point of peak perception. I suggested that even though the company would continue to grow, its stock would suffer as investors slowly sold and went searching for the next Apple. (Precedents include both IBM and Microsoft.) Since that day, of course, the broad market has fallen apart, and it’s enlightening to see how certain stocks have behaved since then.Read More >