Think of investing as growth stocks as adopting a pet from an animal shelter because they're great to keep forever. Growth stocks usually perform better when interest rates fall and company earnings go up. They tend to dip when the economy isn't doing super well. Does that sound familiar in this less-than-stellar economic environment?
Even during these highs and lows, adopting growth companies means that revenues or cash flows will see higher earnings gains through upward growth. You may need to have a healthy risk appetite and many years on your side. Skip investing in growth stocks if you need the money in just a couple of years.
Let's go over how to invest for growth and a few stock ideas to grow your portfolio.
What to Consider Before Investing in Growth Stocks
Consider investing in large, well-established businesses that adopt positive earnings and profit margins. Look for above average growth in earnings per share (EPS). You can also take a look at companies with strong sales growth poised to increase their revenues over time, industries and companies you know well and high returns on equity relative to competitors. You can also look into companies with low or manageable debt levels; learn about a company's liabilities compared to competitors, but remember that it's okay for a company to have debt because it might be investing in additional streams of income or other positive investments. Look for a high return on invested capital, which shows how efficiently a company spends its cash.
Ultimately, take a look at stocks that have a strong leadership team, a large growth and target market and strong sales. Recent annual net losses, recent CEO changes or other changes in higher management, falling or overvalued stocks could also raise some red flags. You may see a decline in shares as the stock price eventually reflects its true fundamentals.
A diversified fund might make more sense to make sure you get the most out of your time horizon and settle on the right risk tolerance, which could mean investing in index funds or mutual funds. Whether you choose to invest in individual growth stocks or opt for growth funds, keep a long-time horizon on your plate.
3 Growth Stocks for Your Portfolio
Check out the following growth stocks we've named for a keep-it-forever portfolio.
Nucor Corporation, headquartered in Charlotte, North Carolina, is the largest steel manufacturer in the U.S. Nucor manufactures steel and steel products through its steel mills, steel products and raw materials segments. It manufactures carbon and alloy steel in sheet, bars and more through its steel trading businesses, rebar distribution businesses and in Nucor's equity method investments. Its steel products segment produces steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, steel fasteners, metal building systems and steel grating. It features tubular products businesses, piling products businesses and wire and wire mesh as well as raw materials which direct reduced iron and ferrous and nonferrous metals.
Nucor reported consolidated net earnings of $2.25 billion, or $7.97 per diluted share, for Q4 2021, up from $2.13 billion, or $7.28 per diluted share, for Q3 2021 and $398.8 million, or $1.30 per diluted share, for Q4 2020. For the full year 2021, Nucor reported consolidated net earnings of $6.83 billion, or $23.16 per diluted share, compared with consolidated net earnings of $721.5 million, or $2.36 per diluted share in 2020.
Marathon Petroleum Corporation refines, markets, and transports petroleum products in the United States. It operates through its refining and marketing, retail and midstream segments, refining crude oil and other feedstocks in the Gulf Coast and Midwest, purchasing ethanol and refined products for resale, and distributing refined products via barges, terminals and trucks.
The company sells transportation fuels and convenience products in the retail market across the United States through company-owned and operated convenience stores, mainly under the Speedway brand and through long-term fuel supply contracts with direct dealers who operate locations mainly under the ARCO brand. It also operates under logistics assets, pipelines, terminals, towboats and barges and gathers, processes and transports natural gas and more.
Marathon reported Q4 2021 net income of $774 million, or $1.27 per diluted share and adjusted net income of $794 million, or $1.30 per diluted share.
The company returned approximately $3 billion of capital through share repurchases since October 31 and completed approximately 55% of a $10 billion repurchase program through January 31 with an incremental $5 billion repurchase authorization.
The company also reported net income of $774 million for Q4 2021, compared to net income of $285 million for the fourth quarter of 2020.
Pioneer Natural Resources Co., headquartered in Irving, Texas, is an independent oil and gas exploration and production company. It explores hydrocarbon exploration in the Cline Shale and operates the Permian Basin, Eagle Ford Shale, Rockies and West Panhandle projects.
Pioneer reported Q4 net income attributable to common stockholders of $763 million, or $2.97 per diluted share. Cash flow from operating activities for Q4 was $2.2 billion and for the full year 2021, net income attributable to common stockholders was $2.1 billion, or $8.61 per diluted share. Cash flow from operating activities for the full year 2021 was $6.1 billion.
The company repurchased $250 million of stock during Q4 2021 and increased its share repurchase program with a new $4 billion authorization. The company returned 101% of free cash flow to shareholders during Q4 as well.
Consider Growth Stocks for the Long Haul
Growth stocks can add volatility into your portfolio, which is why you need to gear yourself up for a long-term investment strategy. However, if you find stocks or funds that show tremendous upside potential compared to competitors, growth stocks should outperform the overall market. In most cases, they're worth adopting after all.
Before you consider Nucor, you'll want to hear this.
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