Investing in growth stocks can be a great way to earn life-changing wealth in the stock market. The key, of course, is to know which growth stocks to buy — and when.
Many growth stocks have been routed through the first half of 2022. While the S&P 500 index crashed about 20%, the S&P 500 Growth index fell 28% through the first six months of 2022. Some growth stocks fell much more, with stock prices cut by half or two-thirds. If you can identify a growth stock with strong fundamentals, now could be a great opportunity to invest.
To help you get started, here’s a handy guide to growth investing. With these tools and strategies, you’ll be able to position your portfolio for long-term success with growth stocks. What is a growth stock?
Growth stocks are companies that increase their revenue and earnings at a faster rate than the average business in their industry or the market as a whole. Growth investing , however, involves more than picking stocks that are going up.
Often, a growth company has developed an innovative product or service that is gaining share in existing markets, entering new markets, or even creating entirely new industries.
Businesses that can grow faster than average for long periods tend to be rewarded by the market, delivering handsome returns to shareholders in the process. And, the faster they grow, the bigger the returns can be.
Unlike value stocks , high-growth stocks tend to be more expensive than the average stock in terms of profitability ratios , such as price-to-earnings , price-to-sales , and price-to-free-cash-flow ratios.
Despite their premium price tags, the best growth stocks can still deliver fortune-creating returns to investors as they fulfill their awesome growth potential.
That said, growth stocks have taken a beating in the market in 2022. High inflation has put pressure on growth stocks since it reduces the future value of their expected earnings. Additionally, supply chain constraints have impacted the ability of some to scale, while other macroeconomic factors impact the entire economy. But the downturn may give long-term investors a buying opportunity while growth stock prices are low.
Growth stocks are companies that increase their revenue and earnings faster than the average business in their industry or the market as a whole. Great growth stocks
To provide you with some examples, here are 10 excellent growth stocks available in the stock market today: Data sources: Morningstar, YCharts, company quarterly financial reports. Data accurate as of August 8, 2022. (CAGR = compound annual growth rate.) Company 3-Year Sales Growth CAGR Industry Tesla ( NASDAQ:TSLA ) 40% Automotive Shopify ( NYSE:SHOP ) 52% E-commerce Block ( NYSE:SQ ) 56% Digital payments Etsy ( NASDAQ:ETSY ) 48% E-commerce MercadoLibre ( NASDAQ:MELI ) 63% E-commerce Netflix ( NASDAQ:NFLX ) 18% Streaming entertainment Amazon ( NASDAQ:AMZN ) 22% E-commerce and cloud computing Meta Platforms ( NASDAQ:FB ) 22% Digital advertising Salesforce.com ( NYSE:CRM ) 21% Cloud software Alphabet ( NASDAQ:GOOG ), ( NASDAQ:GOOGL ) 22% Digital advertising As this list shows, growth stocks come in all shapes and sizes. They can be found in a variety of industries, both within the U.S. and in international markets. And, although all the stocks on this list are larger businesses, smaller companies can be fertile ground for growth investors, too.
A great way to invest in a wide variety of small-cap growth stocks is via an exchange-traded fund ( ETF ) such as Vanguard Small-Cap Growth ETF ( NYSEMKT:VBK ). This fund tracks the performance of the CRSP US Small Cap Growth Index, which gives investors an easy way to invest in roughly 580 small-cap growth companies all at once.
Importantly, the Vanguard Small-Cap Growth ETF has an ultra-low expense ratio of 0.07%. This means investors will receive almost all of the fund’s returns, with only a small amount in fees going to Vanguard. (An annual expense ratio of 0.07% equates to only $0.70 in fees per $1,000 invested per year.) How to find growth stocks
To find great growth stocks, you’ll need to:
> Identify powerful long-term market trends and the companies best positioned to profit from them.
Narrow your list to businesses with strong competitive advantages.
Further narrow your list to companies with large addressable markets.
Image source: The Motley Fool Identify trends and the companies driving them
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