The Two Best Ways to Pick High Growth Stock

Picking High Growth Stocks Using a Value Ratio

If you’re like most value investors, you spend a lot of time looking for stocks that have low price-to-book value ratios (P/B). This lets you compare the market value of a specific company against how much money could be raised by selling off all the assets of the company (using balance sheet prices) to pay off all company debts. A low P/B ratio is usually a good sign that you’re not paying more for a stock than the sum of all its parts are worth.

Other factors you’ll want to consider include:

  • Whether the company has a positive “price-to-earnings ratio” over the past year. (This is also known as the “trailing P/E” ratio)
  • If industry analysts predict a positive P/E over the next year. (This is also known as the “forward P/E” ratio)
  • If the stock is paying a dividend
  • If the company has a good balance sheet and is not too deep in debt

 

Picking High Growth Stocks Using a Growth Ratio

(Categories: High growth stocks, growth stocks)

Word Count: 390

Investors who are looking for high growth stocks are on the lookout for stocks that show movement. Ideally, they want to find stocks that have a strong earnings-per-share and sales growth over the last five years. We suggest also looking for stocks that have improved their performance over the last 12 months.

However, sudden growth can be deceiving, so you’ll also want to check out the stock’s ROE, or Return on Equity. This gives you the figure of how much a company is earning compared to the amount that shareholders have invested; it is a very important indicator of the quality and future potential of a growth stock.

And finally, examine the stock’s price-to-sales ratio (P/S). This ratio lets you look at the stock’s price in comparison to the company’s net sales figures. You want to find growth or high growth stocks with low to moderate price-to-sales ratios, to ensure that you’re getting a good deal on the stock.

Let’s take an example of a growth portfolio. Let’s say that our growth portfolio is not a growth stock portfolio but simply a growth portfolio. It follows the trend of the stock market. We prefer S&P 500 stocks because we have a bias towards large cap stocks. This does not preclude buying small cap stocks at all, but we tend to prefer knowing the company has a proven record.

We also know that small cap stocks can rocket to the moon, but we think there is money to be made without having that kind of volatility (at least for now).

Earlier this year we were short in the market investing in Contra ETFs. In early March, we switched to a long position concentrating in beaten-up large cap stocks that we felt were poised to rebound. We stuck our necks out and bought into companies such as Citigroup, Bank of America, Wells Fargo, and GE.

We try and keep with Warren Buffet’s rules: 1) Don’t lose money and 2) Don’t forget rule #1.We put tight 5% trailing stops on each stock.

This means we do not expose any more than 2% of the portfolio at any time. One stock is unlikely to put much of a dent in our overall portfolio. We follow the 2% rule throughout our various portfolios but with different rules depending on the portfolio objective.

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