GROWTH INVESTING

Sai Krishna Justa

An offering to our beloved lord…
 Individual characteristics
 Risk tolerance is the degree to which you are comfortable with:
• Volatility of annual returns
• Likelihood and size of negative returns

 In the long term:

• Higher returns typically come from taking more risk, but
• Need to be able to sleep comfortably at night?

 The risk required to achieve your goals:

• What is my investment time horizon?
• What are my retirement income expectations?
• What is the value of additional sources of potential retirement income?
Timing counts. . .
 Investment styles

Value Growth

Focuses on stocks that a fund Believes that the single most

manager thinks are currently important thing driving stock prices
undervalued in price and will is rapidly rising corporate
eventually have their worth earnings -- and that's what they
recognized by the market look for

If the manager is right, the stock If the manager is right, the company’s
will increase in price as others stock will increase in price as the
in the market recognize the company achieves business and
true value of the stock earnings growth
 Investment styles

GARP Core

Growth at a reasonable price Fund manager includes both

- looks for stocks of growth growth and value styles
companies that they can buy – objective is to
for a reasonable price not allow any one style
overweight the other

This is a combination of value By not allowing one style to

and growth investing overweight they maintain
a neutral position
Types of Investment Strategies
 Value Investing: Value investors look for companies
trading at less than their intrinsic value. They tend to like
companies with low price -to-earnings, price-to-sales and
price-to- book ratios. You often find that value stocks boast
high dividend yields because their share prices have fallen.

 Growth Investing: Growth investors aren’t as concerned

with P/E ratios or other valuation metrics as much as they are
with a company’s growth prospects

 GARP (Growth At a Reasonable Price): This is a blend

of value and growth. GARP investors want growth, but will
only pay what they consider a reasonable price.
 Growth investing and growth investor

 Growth Investing: Growth investors aren’t as

concerned with P/E ratios or other valuation
metrics as much as they are with a company’s
growth prospects.

 Growth investing is a strategy whereby an

investor seeks out stocks with what they
deem good growth potential.
Thomas Rowe Price Jr. – The father of
Growth investing

He pioneered the methodology of growth investing by focusing on

well -managed companies in fertile fields whose earnings and
dividends were expected to grow faster than inflation and the
overall economy.
Price looked for these characteristics in growth
companies
 Superior research to develop products and markets.

 A lack of cutthroat competition.

 A comparative immunity from government regulation.

 Low total labour costs, but well-paid employees.

 At least a 10%  return on invested capital, sustained high

profit margins, and a superior growth of earnings per
share.
Types of growth investors

 The Small Cap investor: The simplest form of growth investing is to

buy smaller companies in terms of market cap, expecting these
companies to be both high growth companies and also expecting the
market to under estimate the value of growth in these companies.

 The IPO investor: Presumably, stocks that make initial public

offerings tend to be smaller, higher growth companies.

 The Passive Screener: Like the passive value screener, a growth

screener can use screens - low PE ratios relative to expected growth,
earnings momentum - to pick stocks.

 The Activist Growth investor: These investors take positions in young

growth companies (even before they go public) and play an active
role not only in how these companies are managed but in how and
when to take them public.
 Characteristics
 Finding growth stocks The basic premise behind growth investing is
that as a company increases its earnings; its stock price will rise. So
how do you find stocks to fit a growth strategy? Growth-oriented
investors are typically looking for companies that consistently grow
revenues and profits, quarter after quarter, year after year.

 "For growth stocks, you ideally want to find the companies that have
kicked up growth by 20% per year," says Mark Allen, a regional
brokerage consultant at Fidelity. "You should try to narrow the field
using criteria that find companies growing the bottom line by
something other than cost-cutting."
 Growth screens
 Earnings-Per-Share (EPS) Growth (Projected This Quarter vs. Same Quarter Prior Year)
The projected growth of quarterly earning per share compared with the same time a
year earlier.

 EPS Growth (Projected This Year vs. Last Year)

A slightly longer time period that may show if the growth is consistent and is
expected to continue. 

 Price-to-Earnings (P/E) Ratio (This Year's Estimate)

P/E will show how expensive the estimated earnings of this company are on a per-
share basis. This can be a useful way to compare the price of a stock to other
companies.

 Price-to-Earnings Growth (PEG) Ratio

The Price to Earnings Growth (PEG) Ratio is calculated by dividing a stock's forward
P/E by its projected three- to five-year annual earnings-per-share growth rate. PEG
ratio is used to find companies that are trading at a discount to their projected
growth. Generally, the higher the PEG ratio, the pricier the stock.
 One example of a simple screen for large cap growth stocks, available as the
Quick Screen Large Cap Growth uses these criteria:
 CriteriaValue
 EPS Growth (Projected This Quarter vs. Same Quarter Prior Yr) Highest
20% for industry

 EPS Growth (Projected this year vs. Last Year) Highest 20% for industry

 P/E (This Year's Estimate) Less than or Equal to 25.0

 PEG Ratio Less than or Equal to 2.0


Stock Price Greater than or Equal to $5.00
 Some of the stock recommendations for 2011 from Forbes

 Coromandel International
 Theme: Agricultural Growth
 At a growth rate of 4-5 percent, agriculture is expected to play a
crucial role in GDP growth in the coming year. Indian farmers have
begun to invest handsomely in improving yields and Coromandel has
positioned itself as a complete farm inputs company.
 Bajaj Auto
 Theme: Freedom from Interest Rate Impact
 Unlike cars which are mostly bought through loans, three out of four
two-wheelers are bought with own cash. Bajaj Auto would thus be
able to bypass the interest rate impact as it seeks growth. After the
exit of Honda from Hero Honda, the spotlight is on the second
largest two-wheeler maker in the country. Investors who are bearish
on Hero Honda could shift to Bajaj for the two-wheeler play. Under
managing director Rajiv Bajaj, the company is focussing on a
stronger product line and growth opportunity in emerging markets.

 Colgate-Palmolive
 Theme: Retail Expansion
 The spread of organized retail is opening up under-explored
markets to fast-moving consumer goods companies. With 3 million
rural distribution outlets and a leadership position in oral care
products, Colgate is at the right place at the right time.
 Tata Steel
 Theme: Control of Raw Material Costs
 Neither JSW nor Steel Authority of India has the kind of raw
material arrangements that Tata Steel enjoys. The company is
100 percent self-reliant and will not be affected by price
increases in iron ore or coking coal. At the same time, it will fully
benefit from increase in steel prices. This will lead to improved
profitability. It is also the cheapest steel stock among its peers.

 Torrent Pharma
 Theme: Domestic Pharma Play
 Torrent has a very strong domestic focus, an advantage as the
attention of global pharma majors turns towards India. The
ongoing consolidation has created a lot of excitement about
drug companies and this highly profitable company will be in the
limelight. The company’s penetration in smaller cities and towns
will be an advantage in the coming years.
Thank You