There have been many investors before him, many of whom have made billions of dollars; but no investor epitomizes the importance of the best growth stocks quite like Warren Buffet. Worth nearly $80B, Buffet has come to define the qualities necessary for generating stable, long-term wealth through the stock market. Growth stocks allow that to happen, so what exactly are they?
Best Growth Stocks – A Handy Definition
In trying to find the best growth stocks, it helps to understand how they work. Perhaps the best definition you’ll find out there goes something like this: a growth stock is the type of equity investment which an investor takes on with the expectation that said investment will outperform the rest of the market, as well as other stocks in the same peer group. A key anchor for the definition of the best growth stocks is therefore the expectation of capital gains. When an investor takes a stake in a growth stock, he or she isn’t looking for dividend income; instead he or she stakes a bid on the stock appreciating in value over time. So a key component of the best growth stocks is time horizon, usually a very long one. Investors who want to invest in them have to therefore take the patient approach.
Best Growth Stocks – How to Spot Them
Now, once you have a fairly good sense of what makes the best growth stocks, your next move would be actually digging through the ocean of stocks to find one. What you actually look for will depend partly on the definition and partly on taste. In the first instance, the best growth stocks are stable companies. These are the companies that exist in industries and sectors that have a long-term record of consistency, stability, and growth. This definition will not always hold up, of course.
A good case in point for this is the oil industry which since the 1970s, produced scores and scores of multi-millionaire investors, but which eventually fell off and stayed that way. But the oil industry is somewhat of an anomaly. Throughout the history of investing, the best growth stocks have always come from industries and sectors that are a part of the fabric of society. A good example of this is one of Warren Buffets favorite investment, The Coca-Cola Co. (NYSE: KO). Buffet invested in KO decades ago and has held onto his holding through thick and thin. As one of the world’s most recognizable brands, KO has come to define what it means to be a growth stock.
The second aspect of picking growth stocks is really taste. Investors, like most people, have their likes and dislikes. What appeals to Warren Buffet may not necessarily appeal to you; this can occur for many reasons, ethics being a big factor. But ultimately finding growth stocks built on solid corporate foundations should be a key part of strategy. Ultimately, you are looking for a company that has been growing for a long time, has reasonable prospects for growth in the future, and one that has had a history of strong management.
Best Growth Stocks To Buy – A Solid Example
Way back in December 2012, Netflix, Inc. (NASDAQ: NFLX) was a relatively obscure streaming service making its way onto the gigantic media stage and trading at a modest $12. Few believed it would grow into the giant that it is today. But a good growth investor would have read the signs early. NFLX had solid earnings, users were being acquired at fairly stable rates; and more importantly, the future of entertainment was written online. Anyone paying attention would have seen NFLX as a growth stock. Those that made the call back in 2012 haven’t had to wait long to see top notch returns. Today, just five years on, NFLX is trading at a staggering $185, a 1441% return. What’s even more astonishing is that even at such a high price many are still calling NFLX a growth stock. It still is! That’s because there is really no ceiling in the immediate future for online streaming. NFLX and services like it still have another 3 or 4 billion people to tap into. This gives it the best growth stocks advantage – a deep market.
If you are keen on finding the best growth stocks without doing all that digging then we might be able to help. From time to time we research and send out to our newsletter subscribers, some of the top growth stocks currently on the radar. If you’d like to be included on this list you can subscribe to our free newsletter right here.