Weeding Out True Growth Stocks
One of my favorite Value Line screens to run is a growth stock search. I advanced the theory several years ago that a true growth stock was one where not only were sales and earnings growing at a rapid clip but the reinvested profits were causing book value to grow at the high rate. The absolute book value does not matter in this screen -- just the growth rate. Management that is unsuccessful at allocating capital and reinvesting profits successfully will see growth slow and eventually disappear. Those who reinvest successfully in new products and even acquisitions can continue to grow for many years. This theory has held up well over the years; the screen has uncovered some of the biggest growth stocks off the past decade.
I am often asked why a value guy would look for growth stocks. Simply being aware of strong growth companies provides valuable information about market and social trends. Plus, I am aware that not everyone invests like I do, and providing information on great growth stocks may be of service and interest to other investors and traders. In addition, these are the type of stocks I want to buy in the type of full-fledged market meltdown that we saw in 2002 and 2008. Sometimes these great growth companies will sell like bargain issues and I want to be aware of the stocks that fit this definition....468 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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