Growth Stocks:
Investing in Momentum Stocks and
the Top Growth Stocks to Own Now
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What is a Growth Stock?
Growth stocks, also known as glamour or momentum stocks, are money machines that generate substantial—and sustainable—positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company. Our favorite growth stock picks typically have some sort of competitive advantage that allows them to fend off competitors and keep the lion’s share of business to themselves. They also have many different investment opportunities (or a few large opportunities) poised to generate high returns. These high-return opportunities justify retaining most if not all of a growth stock’s earnings and not paying them out to shareholders in dividends.
What to Look for in Growth Stock Picks
At Personal Finance, we pick momentum stocks the hard way—not based on whether the market is a bull or bust, but how and why a company is going to be worth more months and years from now. All of the companies on our top growth stock picks list must meet rigorous standards...
- Companies must be well managed, with established positions in growing markets.
- Demonstrated earnings growth must also be present. Earnings must have grown even during recessions.
- Free cash flow should not be negative even in the worst year the company has had in terms of profits.
- The debt-equity ratio must then be less than the industry average.
- We only recommend growth stock picks when we determine them to be undervalued.
In this new special report, Growth Stocks: Investing in Momentum Stocks and the Top Growth Stock Picks to Own Now, we present three growth stocks that we like. Each of these companies is in a business that’s taking advantage of positive changes. Not all the companies in this report are the same, nor are they even in the same industries or markets; but each is generating significant cash flow for its owners (i.e., common shareholders). And that cash is either being reinvested within the business at high rates of return or else is being sent along to shareholders in the form of fat dividends.
Here’s a sneak peak at what you’ll find in this FREE special report:
Growth Stock Pick #1:
An Oil and Natural Gas Growth Play
Growth Stock Pick #1 is the first publicly traded limited liability company (LLC) in the U.S. since the ’80s. The partnership focuses on the production of oil and natural gas from mature U.S. reserves.
If you were to buy this momentum stock, you would effectively become a partner in the business. Partnerships don’t pay any tax at the entity level. Instead, unitholders—the partnership equivalent of shareholders—pay individual taxes on their distributions. But 80 to 90 percent of these distributions are highly tax advantaged and offer a significant tax shield for investors.
Low-Risk Production and Growing Reserves
Growth Stock Pick #1’s production mix is slightly skewed toward gas rather than oil production on mature reserves. Basically, it buys up known oil- or gas-producing reserves that have already been explored and partially exploited. Mature reserves don’t offer fast production growth, but such reservoirs do offer significant advantages. Primarily, there’s no drilling risk and developing such reserves doesn’t require massive capital expenditures. And mature wells offer a steady, predictable production rate.
Hedged Selling Prices
This momentum stock has a significant hedge book. It uses the futures markets to lock in attractive prices for its oil and gas production. This makes cash flows even more predictable and reduces volatility in distribution payments.
Bottom line: Growth Stock Pick #1 currently pays a dividend of almost 8 percent, and the company will likely be able to grow its payout at an annualized rate of 10 to 15 percent during the next five years. What’s not to like? Its worth keeping on your watch list.
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Growth Stock Pick #2:
Agricultural Powerhouse
Growth Stock Pick #2 is a prime beneficiary of the explosive increase in worldwide demand for agricultural products. Feeding livestock requires large amounts of grain and meal made from crops like soybeans and corn. Rising meat consumption spells increased demand for grains and soybeans. Strong economic growth in the emerging markets has led to rapidly rising disposable incomes. Demand for processed foods and fresh meat is growing as consumers look to eat the same mix of food as their developed-world counterparts.
This momentum stock is South America’s top fertilizer producer and owns a commanding position in Brazil. Brazil is also an unusually fertilizer-intensive market because of the composition of soil in the country; for Brazil to maintain high crop yields for key crops such as sugarcane and soybeans, fertilizer is absolutely necessary.
Biofuels are Another Big Growth Story
Biofuels—liquid fuels made from agricultural products—are further accelerating demand for crops. There are two main types: ethanol and biodiesel. Ethanol can be made from sugar-rich crops such as sugarcane and corn, while biodiesel is made from oilseeds such as soybeans and rapeseed. Governments the world over are mandating increased use and that spells growth potential for investors.
And Growth Stock Pick #2 is a leading producer of all of the agricultural products needed to produce ethanol and biodiesel. The company is involved in the ethanol business both in the U.S. and Brazil. This king of momentum stocks is also the world’s largest oilseed processor. Producing vegetable oil is the first step in biodiesel production.
Growth Stock Pick #2 is a cheap growth stock and definitely on our shortlist.
Growth Stock Pick #3:
Home Improvement Retailer Has All the Right Tools
The economic recovery is more than two years old but U.S. gross domestic product (GDP) continues to limp along at a lackluster pace, unemployment remains elevated and the housing market is at best scraping bottom.
Not surprisingly, U.S. consumers, along with their counterparts in Europe and other developed markets, are saving more and spending less, bad news for most retailers. However, Growth Stock Pick #3 is actually benefiting from the new age of austerity.
The growth in Growth Stock Pick #3’s consumer sales that has been underway for several quarters is gathering steam and broadening out. The company’s recovery is consistent with the jump in spending on renovations since 2009, because more than three-quarters of the company’s sales are for items such as kitchen equipment, flooring, paint and hardware bought by those remodeling their homes.
A momentum stock favorite of ours, Growth Stock Pick #3 is a buy.
Grow Your Wealth With Growth Stocks!
Months and years from now, we believe these growth stocks will be worth much more than they cost today, regardless of what happens on Wall Street. To find out the names of these growth picks, enter your email address in the box provided, and we’ll send you an absolutely free copy of Growth Stocks: Investing in Momentum Stocks and the Top Growth Stock Picks to Own Now. If you sign up today, we will also provide you with a complimentary subscription to the Stocks to Watch e-letter!
Sincerely,
Phil Ash
Publisher, Personal Finance
Investing Daily
7600A Leesburg Pike
West Building, Suite 300
Falls Church, VA 22043
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