Navellier Growth: your source for market-beating growth stocks

 

What is growth investing?

Great question—growth investing at its simplest is investing in healthy, vital, growing companies. These are the companies that are driving the economy forward with sales of their goods and services, and often their innovation.

As I layout in my aptly titled new book, The Little Book That Makes You Rich: A Proven Market-Beating Strategy for Growth Investing—growth investing is what I’ve found to be the most potent strategy for building wealth. That’s why I’ve been a growth investor for over 27 years.

Recently, Wall Street has been turning its attention to growth investing in record numbers. In 2007, a momentous "seismic shift" to growth occurred. Institutional investors began moving their money away from value strategies, which led the market for the past seven years (through 2006), and putting it into growth stocks. Why? Growth is outperforming value hands-down.

Now you don’t want to go piling your money into just any growth stock. As an investor you have to invest wisely and put your money in the stocks with most market-beating potential.

I approach growth-stock-picking like a lot of folks approach buying a car. When you go to buy a car you look at the gas mileage, the warranty, the horsepower, etc. You want to know what you’re getting in a stock, so you need to look "under its hood."

That’s why I insist on checking a company’s fundamentals. Things such as sales growth—are they selling their product at a good clip and increasing sales? Or earnings growth—is the company making money and increasing its profits quarter to quarter?

I focus on eight fundamentals in particular:

1. Positive Earnings Revisions. I like to see stocks that have had their earnings estimates increased by Wall Street analysts. This usually tips us off to a stock that’s about to “beat earnings.”
2. Positive Earnings Surprises. Speaking of beating earnings, I also look to see if a stock has been able to beat its earnings estimates, and by how much. This is an important number to watch because it often tells me about a stock that Wall Street isn’t paying much attention to or doesn’t yet “get.”
3. Increasing Sales. I also like to see a company that can grow its sales over time. Why? Because it’s one number that is hard to fake. My background is in accounting, and I’ve always made sure to steer away from companies that use questionable accounting practices. Sales growth is a solid indicator.
4. Expanding Operating Margins. This simply tells me if earnings are growing faster than sales. A company that’s able to expand its operating margins is usually a company that has a dominant position in its industry. This company can raise prices without seeing a drop-off in sales. That’s a nice place to be.
5. Free Cash Flow. This tells me how much money a company has left over after paying for the costs of its business. Having a strong cash flow is important because it allows a company to invest more resources in growing its business.
6. Earnings Growth. This is at the heart of all good financial analysis, and I rely on it as well. As long as any company is able to grow its earnings consistently, its stock will do well.
7. Positive Earnings Momentum. It’s not enough for me to see a company's earnings growth—I also want to see its rate of growth increase.
8. Return on Equity, or ROE. This is the gold standard. ROE tells me how efficiently a company is managing its resources. I can’t interview every senior manager at a company, so I like to think of ROE as a report card for management.

Together these eight fundamentals will help you find the best stocks on Wall Street. There are a number of websites out there (Yahoo Finance, MSN Money, etc.) that allow you to access such information on virtually any stock—quickly.

As a growth investor in this business for many years, you won’t be surprised to hear I’ve developed my own stock-rating tool that does the heavy lifting for you. PortfolioGrader Pro lets you analyze nearly 5,000 stocks on these eight fundamental criteria (plus a special quantitative variable that measures buying pressure—that’s the virtual cherry on top of my formula). You can even save your own personal stock portfolios to it, and check on them anytime.

Best of all, my system for picking growth stocks has a proven record of beating the S&P 500 4-to-1. So you see, growth investing is a terrific way to help you build your wealth.

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