What is Growth investing?

Study Notes:

Growth investing is a stock-buying strategy focused on investing in companies that are expected to grow at an above-average rate compared to their industry or the market.

Growth investors look for companies in rapidly expanding industries and often favor factors such as historical and future earnings growth, profit margins, and returns on equity when evaluating stocks.

Typically, small diamonds in the ruff, or younger companies with the potential for significant earnings or revenue growth.

Investors seek to maximize capital gains through capital appreciation, and growth stocks may also trade at high price/earnings (P/E) ratios.

This strategy is considered more offensive and active, aiming to build up a portfolio and generate higher returns.

Growth investing is often contrasted with value investing, as growth investors focus on a company’s future potential rather than its current stock price.

Growth stocks can be found in various sectors, not limited to just technology. While technology companies like Amazon, Tesla and Alphabet are often associated with growth stocks, other sectors also harbor growth stocks.

Let’s review some examples:

Healthcare

Companies in this sector, especially those involved in innovative biotechnology, pharmaceuticals, and medical technology, can exhibit high growth potential.  An example is Vertex Pharmaceuticals (VRTX). Vertex Pharmaceuticals is a biotech company that primarily focuses on developing drugs to treat the underlying cause of cystic fibrosis (CF), a rare genetic disease that damages lungs and other organs.

Consumer Discretionary

This sector focuses on providing non-essential goods and services, such as retail, automotive, and leisure products.  An example of is Nike, Inc. (NKE). Nike has shown significant growth, with its revenue presenting a strong growth year-over-year, mainly driven by increased demand in North America and China

Industrials

Some companies within the industrial sector, particularly those involved in inventive technologies, renewable energy, and advanced manufacturing, may qualify as growth stocks.  An example of an industrial growth stock is Caterpillar Inc. (CAT). Caterpillar is a leading global manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives.

Communication Services

This sector includes companies involved in telecommunications, media, and entertainment. Certain firms within this sector, especially those driving technological innovation, may exhibit strong growth characteristics.  An example of this is Meta Platforms, Inc. (META), the parent company of Facebook and Instagram, is one of the largest social media companies in the world.

Growth stocks can be found across a wide range of industries, and investors should conduct thorough research to identify specific companies with strong growth potential within different sectors.

It is worth noting that growth stocks can be high-risk, high-reward investments, typically suitable for long-term investors who can tolerate market fluctuations.

Thanks for joining us – in the following lessons we’ll dive into growth, how it differs from value investing, explore growth screeners and fundamentals within TWS.