What is a Growth Stock?
A growth stock is an ownership share in a company whose earnings are expected to grow at an above-average rate relative to the overall market. Growth stock companies typically prefer to reinvest their earnings as opposed to paying them out in the form of a larger dividend (although some growth stocks do pay dividends). This is due to the fact that they and their board of directors believe the best use of the capital (or the one with the highest potential for returns and which supports the future of the company) is in reinvesting those funds. Typically over time as companies mature and expand they can be seen to move from the category of a growth stock which reinvests most/all earnings to a slower growth period (due to their size) and will typically focus on paying a dividend and growing that going forward from that point. Growth investors choose stocks based on the potential for capital gains and associated price appreciation of the underlying shares, not dividend income, so they can be risky.
How do I Find Top Growth Stocks?
Investor’s Business Daily is a great source for reviewing various stocks and determining how they are performing overall in a number of categories (based upon the IBD system/CANSLIM) which considers fundaments to growth such as earnings growth, sales growth, new products/services, etc. IBD also provides a rating system for each stock online for subscribers, and provides consolidated lists of top stocks, although they do not pick/select the best stocks for you, they let you pick through and select the ones you feel meet the criteria and that you want to invest in.
Are These Stocks Volatile?
Growth stocks can be somewhat volatile. Personally, i have seen many do extremely well (top ones) during periods where the market is running up (they typically say 3 out of 4 stocks go with the direction of the market) providing excess returns. However, they can very quickly turn on a dime and will drop rapidly many times during a market down turn.