Log in

Best Growth Stocks - Best Stocks to Buy Now in 2020

 

The stock market has been growing since the New York Stock Exchange opened its doors in 1817. Sometimes, a stock will outpace the rest of the market in terms of growth. These skyrocketing securities—or the ones that analysts expect to skyrocket—are called growth stocks.

What Every Investor Needs to Know About Growth Stocks

Growth stocks are a great opportunity for an investor to make money in the stock market, but you’ve got to know what you’re going to buy or sell. A good understanding of growth stocks will help you get there.

At the beginning of a bull market, you can almost choose stocks randomly and find yourself a winner. Now that we are entering the ninth year of the current bull market, growth stocks have appreciated considerably and it's becoming far more challenging to find stocks with real opportunities for appreciation.

Growth companies are still largely outperforming their value counterparts in the United States and the rest of the world largely because of low interest rates, improved corporate earnings and global economic growth. Over the last five years, the S&P 500 Growth Index has returned 14.22% per year. During the same time, the S&P 500 Value Index returned just 12.94%.

Now that the bull market is now nearly a decade old, stocks have become very expensive. Value investors are largely sitting on the sidelines and growth investors are having a hard time figuring out where the remaining growth opportunities exist.

If you are looking for growth stocks in an increasingly small field, we have identified the 10 best growth stocks to buy right now based on their expected earnings growth over the next several years. These companies are all growing rapidly and will likely see double-digit earnings growth next year.



Click the "Continue to Slide #1" button to view the first company.

A growth stock is a share in a company that is growing at a significant rate. Consequently, the stock price is expected to grow as well. These companies might be in their earliest startup stages, or perhaps going through some aggressive expansion. Either way, because growth is their focus, they will typically not issue dividends. Instead, they’ll reinvest their earnings back into the company to help it grow.

Many growth stocks are in startup industries that have blossomed in recent years, and may not have even existed a few decades ago. This could include biotech, cannabis, and artificial intelligence—but growth stocks can also be found in more traditional industries, such as transportation, energy, and entertainment. It all depends on the company issuing the stock and what they’re doing.

Growth companies tend to have a uniquely singular product or product line, which facilitates their rapid growth beyond the rest of the industry. They may have proprietary technology, special access to certain resources, or incredibly growth-oriented management. Whatever the case may be, they’ll want to continue to stay ahead of the competition, so there’s a good chance they’ll be reinvesting their earnings into research and development.

Another trait of growth companies may be a loyal following or customer base. The company may own a significant amount of market share in their industry. For example, if a startup biotech company discovered a universal cure for cancer, you can bet they would have a significant share of the cancer-cure market...in fact, they’d have an outright monopoly.

This trait of sizeable market share ownership is what we’ve seen with some of the biggest growth stocks in the past few decades. For a while, Amazon was one of the only e-commerce sales venues where consumers could buy a wide variety of goods online. Facebook held a virtual monopoly on the concept of social media—and then bought up competitors like Instagram who entered their space. The proprietary technology at Google gave them the ability to outpace other search engines that had already existed for years. In all these cases, growth companies had a lockdown on a particular market, and the company grew exponentially within a short time.

Growth stocks are not known for paying out dividends. What they are known for is growth. That said, investors hope to buy low and sell high, earning big gains on the difference in price.

Investors might also hope that a company that passes fundamental analysis with flying colors might become an established, dividend-paying investment. In most cases, it would be impossible for a company to keep growing forever. At some point, they’ll likely have to plateau and allocate funds previously used for expansion towards solidifying their operations.

Growth stocks can be a great way to grow the value of your portfolio as other assets may struggle. They can also be a great way to grow your cash when the market is good. When some other investment comes along that you’re hoping to buy into, you can liquidate your shares have tons of cash on hand—far more than you did when you first bought those shares of Apple in 1980 for $22 apiece.

Companies in aggressive states of expansion might split their shares of stock. They do this to increase the number of outstanding shares, which helps the share price stay low and attract more investors. If you had bought even just 10 shares of Apple in 1980, you’d find yourself today with 650 shares of this tech behemoth after the four splits it’s gone through in the last 30 years.

Some growth stocks are totally unproven entities. They may project an appealing image that makes them stand out from the other cheap stocks to buy, but their business model could prove to be an epic failure or they could go bankrupt. It can be hard to do a proper fundamental analysis on a company with no established history, and hard to crunch numbers and predict trends for the same reason—so whether you’re a long-term investor or a short-term trader, growth stocks can be a risky proposition.

Some growth stocks traded outside the stock market (such as penny stocks) are not required to show their balance sheet, and their self-proclaimed free cash flow could be a total sham. Soaring growth rate and first-quarter earnings could promise a future of cash flow—until events beyond investor control lead to sudden buybacks and the founding fathers bail out with the help of a proverbial golden parachute (it’s happened). Remember that there is more to the health of a company than its EBITDA (earnings before interest, taxes, depreciation, and amortization). In fact, there’s a lot more to great growth stocks, so investors should do their due diligence before making any investment decision.

Growth stocks can also be overvalued. In fact, many of the FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google) are said to be wildly overvalued by pundits who are not impressed by their size or power. A company may seem to have high levels of promise, which attracts investors, whose incessant buying drives up the price, attracting more investors...and so on. This cyclic process drives up the (perceived) valuation of a growth stock to a point far beyond its true worth, which can result in a bubble pop like the one we saw with many internet startups in 2000.

Growth stocks may also turn out to be some of the most volatile stocks, which does not bode well for the average retail investor. Unequipped to analyze the waves of the stock market and know when to hop on and off, bumpy prices will take them for a harrowing ride—ultimately landing not too far from where they started and leaving them with minimal or negative profits. Stock trading is not for everyone, and knowing which stocks to buy now is a real blend of arts and sciences that takes years of trading experience.

Growth investing is sort of like drinking red wine—a moderate amount every day is good for your health, but too much is detrimental. A portfolio made entirely of growth stocks can wildly careen out of control. It could turn out to be a cash cow, but based on the failure rate of startups, it’s more likely to be a total money loser.

That said, investors will want to invest only a portion of their portfolio into growth stocks. It can be very hard for the average retail investor to thoroughly determine which companies are truly on the path to growth, so their best bet is to place their money into an exchange-traded fund, or even multiple ETFs. Another option is to invest in one of the many mutual funds that focus on growth and is managed by competent financial advisors.

A growth fund such as this is made up of individual stocks and geared toward generating profit margins that can be reinvested back into buying more growth stocks. After decades of wealth management, the assets of such a portfolio can be moved into securities with less volatility, such as government bonds. For retirees, the time for trading stocks is over, and portfolios should be converted into something that can provide a steady stream of revenue.

This is actually a great strategy for younger investors who are just building their retirement portfolios, because once a person enters retirement, it’s better to have their portfolio stabilized in less active equities. But while they’re young, with decades ahead of them, they have time to ride out the waves of the market and grow their money.

However, other financial pundits warn against the inherently riskier nature of getting involved with growth companies when it comes to investing in stocks. Instead, they suggest buying stocks that have the potential for dividend growth. These dividend stocks or dividend growth stocks usually have a higher amount of earnings per share. Income stocks that pay dividends (they argue) provide a better return on equity for long-term investing.

If you really want to play around with your own brokerage account, without the help of fund managers, you need to have a good sense of what’s going on in the market and current events. Knowing about the news of the day in various sectors like energy, media, and tech will help you identify potential investment opportunities. If you use a full-service broker, you can follow that discovery up with some research to analyze the position of the company before investing in it. It’s important to really consider your risk tolerance and investment objectives before dedicating yourself to the pursuit of growth stocks.

Here are the best growth stocks to buy right now. These are the companies that are outperforming the stock market. These rapidly growing companies are expected to see growing earnings over the next few years, as they continue to ride the bull market and global economic growth in 2019-2020. If you want to know about which stocks to invest in, and what to do in terms of making a trade, this list of growth stocks to buy right now should be your primary go-to list of stock picks.

Value Stocks vs Growth Stocks

Value stocks may not be the most active stocks, but they tend to have great value as indicated by a lower price-to-earnings ratio. These companies might have been around for a while already, and do not generate huge amounts of speculative excitement around new products or services. However, when analyzing a price-to-earnings ratio, some growth stocks could also be value stocks.

Beginning investors may wonder what is dividend yield and why it matters. The dividend yield is actually another strong indicator of a stock’s value, in addition to the P/E ratio (price-to-earnings). The dividend yield formula is just dividing the dollar value of yearly dividends by the stock’s share price). If a stock has a dividend yield of 4-6%, that’s considered quite good.

A dividend investing strategy is the secret formula for some of Wall Street’s wealthiest investors. If you own one share of a stock priced at $50, and the dividend yield is even just 3%, that company will pay you $3 every year from their earnings. That dividend might not mean a lot to a casual investor with ten shares, but if you owned 100,000 shares of that stock, it would generate a dividend of $3,000 annually for you. If you consider big investors like Warren Buffet own millions of shares of stock, it’s easy to see how dividend revenue alone can turn into a six-figure income.

Some stocks might even be undervalued because of poor performance, or because other similar companies are stealing the limelight. But even these poorly performing companies might issue sizeable dividends. However, investors are not banking on a tremendous price increase that will yield some sweet capital gains.

Overall, value stocks tend to be issued by stable companies that won’t be going out of business anytime soon. Growth stocks, by contrast, tend to be issued by companies that have not yet withstood the test of time. Many experienced investors will build a portfolio from both growth stocks and value stocks, relying on the dividend payments and stability of the latter, and the potential of the former.

Stocks to Buy Now

Buying and selling stocks is a great way to profit from their capital appreciation, but you need to understand what you’re buying. Growth stocks are great for investors who want to grow the value of their portfolio, or ride a wave of potential success all the way to the shores of huge cash growth. These growth stocks are issued by companies that are in an aggressive phase of expansion, either because it’s part of their business plan, or because they have a huge market share locked down with proprietary technology or a patent.

However, since many growth stocks are recently founded startups, it can be hard to predict where they will go. That said, investors can mitigate their risk profile by balancing out their growth stock portfolio with some value stocks. The ratio of the two will depend on how much risk they can handle.






30 Days of MarketBeat All Access for $1.00

Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools:

  • Best-in-Class Portfolio Monitoring

    View the latest news, buy/sell ratings, SEC filings and insider transactions for your stocks. Compare your portfolio performance to leading indices and get personalized stock ideas based on your portfolio.

  • Stock Ideas and Recommendations

    Get daily stock ideas top-performing Wall Street analysts. Get short term trading ideas from the MarketBeat Idea Engine. View which stocks are hot on social media with MarketBeat's trending stocks report.

  • Advanced Stock Screeners and Research Tools

    Identify stocks that meet your criteria using seven unique stock screeners. See what's happening in the market right now with MarketBeat's real-time news feed. Export data to Excel for your own analysis.

Start Your Risk-Free Trial Subscription Here

Enter your email address below to receive a concise daily summary of analysts' upgrades, downgrades and new coverage with MarketBeat.com's FREE daily email newsletter.