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Technology Stocks : Growth Investing

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From: quantinvestor	8/13/2021 9:00:04 AM
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Growth investing has been extremely profitable with growth funds such as Cathie Wood’s ARK Innovation ETF (ARKK) surging over 200% over the last year. The performance of growth funds have been attributed to disruptive growth stocks that are able to take advantage of opportunities from record-breaking technological changes. These companies have the potential to change their industry’s landscape by creating simplicity and accessibility while driving down costs with their technologically enabled product or service. The current pull back we are seeing in the market presents an attractive buying opportunity for long term investors looking to gain exposure to these disruptive growth stocks. Today, we will explore the characteristics of growth stocks and discuss how we can identify top growth stocks that are revolutionizing their industry. What is a growth stock? Growth stocks are companies that increase both their revenue and earnings at a faster rate than most stocks in their industry. These companies are able to generate exponential growth by developing an innovative product or service that is able to gain market share from its competitors or creating entirely new industries. These high growth stocks are rewarded by the market, delivering huge returns to shareholders in the process. The faster their growth, the bigger their returns. In contrast with value stocks, high growth stocks are relatively more expensive with higher price to earnings ratio (P/E Ratio) and price to sales ratio (P/S Ratio). However, even though growth stocks are expensive relative to the current earnings, the best growth stocks can still provide huge returns to investors when they realize their growth potential. How do we find growth stocks? With thousands of stocks to choose from, how do we identify the best growth stocks to invest in 2021? We can use a screening tool, to scan thousands of stocks in the market and filter stocks with strong revenue growth. Using this list of fastest growing stocks today, we run a fundamentals backtest to further select the top growth stocks for our portfolio. Finally, qualitative investors may also further enhance the selection of growth stocks using fundamental analysis.

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