How To Identify Top Growth Stocks

Many investors attempt to find growth stocks, but how does an individual investor seek out and identify the best and brightest growth stocks for their portfolio? A savvy investor looks for specific fundamental characteristics to unearth these companies.  

First, growth traders look for companies that are expected to grow at an above average rate, corresponding to the market as a whole.Further, analysts look for better than average cash flows, earnings, and or revenue growth.

By their nature, growth stocks tend to have higher volatility risk, and rarely issue dividends. But, growth stocks tend to produce higher returns, and they typically reinvest their capital into further growth opportunities (acquisitions, or expansion projects), compounding the future growth potential.

What people tend to do wrong

Without a research platform some investors will look for companies that are outperforming the market on a single day or at most over a few days’ time. If the investor is not looking at specific items like earnings, sales, or revenue growth the investor will be missing the key fundamentals of growth trading. This unbalanced approach to investing, almost always goes bad.  

The correct way to pick growth stocks

By utilizing key factors like Zacks Rank, and Zacks Style Score the investor is able to better narrow down the well performing companies from the universe of available stocks to purchase. Further, by combining key fundamentals with the Zacks factors, the investor can isolate the best and brightest stocks.  
For Growth stocks, I have built a simple screen that marries fundamentals with Zacks Rank and Zacks Style scores.This combination identifies the best companies exhibiting growth characteristics.  

Screen Parameters:

  • Volume 20 Days > 1 million shares

(To ensure large volume and not a small stock that is lightly traded)

  • Zacks Rank < 2

(No Holds, Sells, or Strong Sells)

  • Growth Score < B
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