Picking High-Growth Companies: How to Find the Next Apple
by Alexander Green, Investment U Chief Investment Strategist
Friday, February 17, 2012: Issue #1711
Apple’s share price exceeded $500 this week, giving it the largest market cap of any U.S. company.
Apple (Nasdaq: AAPL) so successfully sells computers, phones and other electronic gadgets that recently announced fourth-quarter profits soared 118% on a 73% increase in revenue. This is unheard of for a $475-billion company.
To put this in perspective, earnings at the companies in the S&P 500 stock index are on track to post a 6.6% year-on-year rise for the fourth quarter. Yet once Apple’s earnings are factored out, the expected fourth-quarter gain shrivels to just 2.8%. This so skews results that many Wall Street analysts are now stripping Apple from the index before weighing valuations and making forecasts.
Of course, it’s just a matter of time before Apple’s torrid growth begins to wane. It’s not possible for $500-billion companies to keep growing at the rate of $5-billion companies… or even $50-billion companies.
So the key is to search for the next Apple. But how do you find it?
Fortunately, the factors that make a great-performing stock are well known and have been intensively studied by academics and researchers. We know the key characteristics that top-performing stocks generally possess before making their parabolic moves up.
Here are just a few:
These are some of the key criteria that companies need to meet to generate superior long-term returns for shareholders.
We may not see another company in our lifetimes that transforms the business landscape the way Apple has. But there are plenty of great innovators out there, including Amazon (Nasdaq: AMZN), Google (Nasdaq: GOOG), Genentech, eBay (Nasdaq: EBAY), Costco (Nasdaq: COST) and Intuitive Surgical (Nasdaq: ISRG).
These companies – and others like them – are likely to be among the best-performing stocks in the years ahead.