The Importance Of Growth Stocks And Value Stock

Growth stocks and value stocks are both good investments. However, knowing the nuances of each type of stock and when is the optimum time to invest in each is the key to having a sound investment strategy and maximum return for the investor. Growth stocks are usually characterized by strong growth rates, in current, prior and future periods. Growth stocks a can be defined as the stock of a company which is growing earnings and/or revenues faster than the industry or the overall market. (Growth, 2015) Most growth stocks will have a strong return on equity. The return on equity measures a corporation 's profitability by revealing how much profit a company generates with the money shareholders have invested. (Definition, 2015) Growth investors feel the best avenue to maximum returns is to find stocks with strong relative momentum, they want high earnings growth rates and little to no dividends. (Thune, 2013) Many growth companies are in the technology or biotechnology sector. One of the hallmarks of a growth company is that they usually invest their profits back into the company for use in acquisitions or various projects to expand their business. It is rare that a growth stock pays dividends to shareholders. When an investor looks to invest in a value stock, they are usually looking for a deal. Most value stocks are …show more content…
That question is up for debate. Value stocks have outperformed growth stocks in four out of five decades since the 1930s. The only decade where growth outperformed value was during the 1990s tech stock surge. (Ferri, 2013) However, in the past year, the best performing stocks have been health-care and technology companies, which tend to be growth stocks. These sectors constitute over 50 percent of the Russell 1000 growth index. In these sectors, top performing stocks are creating their own destiny in creating new markets that are less dependent on the economy. (Lauricella,