Going into 2021, several companies were poised to experience sustained growth and rapid increases in earnings and profits. Investing in such companies brings steady dividend streams for income investors and capital appreciation for growth investors.
This article takes you on an explorative journey as we delve into some of the best growth stocks in the current market.
Where Can I Trade Growth Shares?
Just like any other shares of a company’s common stock, growth shares are purchased via a broker. Choose a broker that is regulated and which lists the shares you wish to trade. There are other criteria, such as tight bid-ask spreads and efficient execution of trades, so we’ve made your selection process easier by identifying some of the best brokers.
What Are Growth Shares?
Growth investing focuses on making money from companies early in their business cycles. To illustrate this, let’s compare value investing with growth investing.
A value investor chooses to buy shares in a bank that has been in business for the last 50 years. This bank used to be quite profitable but has been struggling to make money for the past decade. Consequently, the market is pessimistic about the company's prospects, so it gives the bank’s stocks a low valuation.
A growth investor decides to invest in a three-year-old tech company that offers revolutionary cloud solutions to enterprises. Since many firms are using cloud solutions to power their businesses, the market is optimistic about its prospects, so this tech company has a high valuation like many promising tech stocks.
Unlike value investors who look in the rear-view mirror to find formerly successful companies that may rekindle some of their former glory, growth investors look at the road ahead to see where tech-oriented companies may be heading.
How to Trade and Invest in Growth Shares?
Open a Brokerage Account
Almost any adult can open a brokerage account in minutes by filling out an online application form with their name, address, email address, and other required information. You will have to provide some proof of identity before your account is fully activated, and you can then deposit trading funds by bank transfer, credit/debit card, or other methods such as PayPal (depending on the broker).
Choose Your Growth Shares
The broker’s mobile app or web trading platform will list the shares that are available for you to buy. Search or scroll through this list to find our suggested stocks or ones that you have identified through your own research. You should be able to select each stock to see additional information that includes a price chart.
Place Your Trade
To place a trade, you fill out an online trade ticket (to buy immediately) or order ticket (to buy at a future time, such as when the markets next open or the share price hits your desired level). The ticket will ask you for the number of shares you wish to buy or the amount of money you wish to invest.
Top 10 Growth Shares to Trade
Growth investors invest in industries with rising tides that could lift all boats (i.e., stocks) in that sector. Here are ten stock picks that should benefit from the rising tide of share prices:
- The Trade Desk
- Viomi Technology
- Cadence Design Systems
Now, let’s look in more detail at five of those candidate growth stocks.
1. The Trade Desk (NASDAQ: TTD)
Investors in The Trade Desk have scored big in the face of strong growth in Connected TV. Since brands are going to continue relying on automated ads, the company is well-placed for significant gains this year.
The share price performance suggests something slightly different. Having more than quadrupled in price between March 2020 and November 2020, TTD shares have since depreciated by about 35% by mid-June 2021. Some savvy investors would see such occurrences as an opportunity to “buy on the dip”.
2. Roku (NASDAQ: ROKU)
Roku’s share price rally that started in March 2020 continued in the first six weeks of 2021 after the company published a positive quarterly report. The impressive revenue and growth rates posted by Roku were primarily fuelled by pandemic-induced lockdowns and increased online video streaming during the coronavirus pandemic.
Between February and June 2021, Roku’s share price consolidated at about 27% below the peak price. This pause for thought could be considered to be a good time to invest before the uptrend (hopefully) resumes.
3. Twilio (NYSE: TWLO)
Twilio shares more than quadrupled in price between March 2020 and February 2021 and the company released promising fourth-quarter results that suggested even more growth in coming years.
Like many growth stocks, the share price has since fallen back to stand about 25% lower in June 2021. As with other stocks on our list, this could mark a good time to buy on the dip in anticipation of a new growth spurt.
4. Wix.Com (NASDAQ: WIX)
The cloud-based web development solutions offered by Wix.com allow individuals and firms to create websites easily. The 2020 fourth-quarter and full-year results indicated that Wix had a great year.
With shares sitting some 20% below the February peak price in June 2021, this could be a growth stock masquerading as a value stock.
5. Viomi Technology (NASDAQ: VIOT)
At one point in the past few months, the volume of VIOT stocks being traded daily rose significantly. Along with a rising share price, rising trading volumes are an indicator of a growth stock.
Having almost tripled in value between December 2020 and February 2021, the shares had fallen back by about 40% by June 2021 but appeared to have stopped falling. Consolidation can be a good time to buy shares.
Expert Tip on Investing in Growth Shares“ Growth shares are more about rapid share price appreciation (based on perceived future prospects) than steady dividends (based on past performance). As such, technical analysis factors such as price chart patterns and trading volumes may be more important than fundamental analysis. ”- Jim Mwangi
Why Invest in Growth Shares?
The current macroeconomic trends favour growth investing. Historically low interest rates in most parts of the world provide firms with quick access to capital, which is the lifeblood of fast-growing enterprises. This is the case for investing in growth stocks.
However, the good times assured by fiscal stimulus measures can’t last forever, so it’s always a good idea to build a diverse portfolio that includes a good mix of growth stocks and value stocks to weather any market storm.
Frequently Asked Questions
All properly regulated brokers will request copies of identification documents (e.g., passport) to prove who you are. It’s part of their “know your customer” (KYC) procedure to help keep them and you safe from scams.
There are various ways to keep your account safe. Choose a regulated broker, and use security measures such as two-factor authentication (2FA) where available. Protect your investment positions with stop orders and effective diversification.
A lot of news is available on social media, and many expert traders offer advice on such media outlets, but don’t take any advice at face value. There are plenty of respected financial websites, such as Yahoo! Finance, that provide news feeds or published stock-related news stories.
Beginner investors could get lucky by choosing growth stocks just before their share prices appreciate significantly, but don’t confuse beginners’ luck with trading skill.
Some brokers may provide additional services such as bot trading for their investors. You can also automate some aspects of your trading with pending order types — limit orders, stop orders, and trailing stop orders — that buy and sell stocks automatically when specified price levels are hit.
All stocks are traded during market trading hours, which are typically 8 am to 4.30 pm (local time) from Monday to Friday.