The Right Way To Find Growth And Value Stocks
The Right Way To Find Growth And Value StocksAuthor: Tom PrestonThe Right Way To Find Growth And Value StocksLooking for growth and value in your stock picks is a winning combination. Especially now, since growth rates have been subdued and valuations are getting increasingly higher. And while there are still plenty of them around, it's getting harder to find stocks that fit squarely into both categories.First off, Growth Investors focus on companies with great earnings growth, which makes sense since earnings drive prices. But nobody wants to overpay for good growth.Value Investors focus on low valuation metrics, such as low P/Es for example. But many companies have low P/Es because they don't have any real growth. They lack earnings power. People aren't willing to pay up for these stocks because there's nothing to pay up for.But looking for both growth and value is a great combination and helps alleviate the pitfalls of having one but not the other. But I believe there is a right way and a wrong way to find both growth and value stocks.What I mean is this:Most will start off with either one or the other. For example, one might look for stocks with the biggest growth rates first, and then narrow down to those with the smallest P/E ratios.But if the biggest growth rate stocks all had high P/E ratios (let's say in excess of 20 or more), are you really finding the best of the value stocks? The answer is no.There’s a similar situation if you screen for the lowest P/E ratios first, and then narrow that list to the ones with the biggest growth rates.
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