is astockof a company that generates substantial and sustainable positivecash flowand whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry.A growth company typically has some sort ofcompetitive advantage(a new product, a breakthrough patent, overseas expansion) that allows it to fend off competitors. Growth stocks usually pay smaller dividends, as the company typically reinvests retained earnings in capital projects.
Analysts computeReturn on equity(ROE) by dividing a companys net income into averagecommon equity. To be classified as a growth stock, analysts generally expect companies to achieve a 15 percent or higher return on equity.2CAN SLIMis a method which identifies growth stocks and was created byWilliam ONeila stock broker and publisher of Investors Business Daily.3
Since 1982, the growth stocks have beatenvalue stocksduring:4
During the rest of the years, the value stocks have done better. Note that the 5 years preceding thedot-com bubbleburst, growth stocks did better than value, since thenvalue stockshave generally done better.
Some advisors suggest investing half the portfolio using the value approach and other half using the growth approach.6
How to Make Money in Stocks: A Winning System in Good Times or Bad
Growth vs. Value: Two Approaches to Stock Investing. TDAmeritrade. Archived fromthe originalon March 2, 2009
Russell Investments: Russell U.S. Indexes daily total returns.
Multi-Style Investing: A Tale Of Two Investment Styles
. Bernstein Global Wealth Management. 2004-07-22.
DuPont: Despite Earnings Miss, Still a Growth Stock
Top Growth Shares – an explanation of growth share investing, tied to the principles of Graham
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Articles needing additional references from July 2008
This page was last edited on 29 March 2016, at 21:53