Beware Growth Stocks!

By Steve Reitmeister, Editor-in-Chief, WallStreetZen
December 13, 2024 6:15 PM UTC
Beware Growth Stocks!

Dear WallStreetZen Member;

A couple weeks back we launched the Zen Ratings for over 4,600 stocks on WallStreetZen.com. 

This has led to a flurry of activity to learn more about the Zen Ratings via…

  1. Education home page >
  2. Zen Ratings Revolution webinar replay >

Today we are going to take another step forward with the first of many Saturday emails to further your understanding of the Zen Ratings to enjoy more investment success.

Let’s get started with everyone’s favorite group of stocks; Growth. 

When it goes right, it leads to a long period of outperformance. NVDA being the current poster child. 

Unfortunately, the landscape is also riddled with growth stocks gone wrong leading to horrifying losses. Here are some of the most notable victims in 2024 alone:

-79.91% 23andMe (ME) 

-77.36% iRobot (IRBT)

-69.22% Medifast (MED)

The great fallacy in growth investing is that all you have to do is hitch your wagon to the fastest growing companies and you will make money. 

Academic research shows this to be a complete and utter fabrication. 

In fact, it has been proven that stocks with the highest projected growth rates actually end up having the worst stock price performance. 

I realize on the surface that doesn't quite make sense. So let’s dig deeper on why this is true. 

Hot stocks expected to enjoy earnings growth of 30%+ per year will have a period of tremendous price appreciation. This leads to them ultimately being priced for perfection. 

Unfortunately time and time again the promise of exceptional growth does not meet up with the reality. 

That is because that company's competitors are taking notes. And doing everything in their power to win back market share including scalping top employees from the juggernaut firm. 

In time, it is nearly impossible for any company to keep up the torrid growth pace. You may think that slowing down to 20% growth is still pretty impressive…but not if the PE is pumped up in expectation for 30%+. 

When news spreads that the growth party is over…the stock price will implode!

So if chasing stocks with the highest growth rates is not the path to success, then what does work? 

Consistent growth. 

Meaning the ability to grow at a healthy pace for a long period of time as proven out by a string of quality earnings beats with estimates going higher for the future. 

This always has been…and always will be the most appealing thing for investors leading to serious share price outperformance.

Gladly the Zen Ratings dials into this through the 21 different measures of Growth in the quant model. 

Not just earnings growth, but also broadening out to find gains in revenue, cash flow, profit margins and EBITDA. 

The more consistently this happened in the past…and across multiple growth measures…the more likely it continues in the future. 

And the more likely you wake up the morning of their next earnings report to find another beat and raise on your hands with shares flying higher. 

This behooves every growth oriented investor to make sure that the stocks they own stack up on this vital Growth component of the Zen Rating. 

To be clear, step 1 in the process is to find stocks that are A & B rated overall. This means that the full 115 factor analysis of the stock shows they are primed to outperform. 

That is what you will find in the top half of the info shared on our quote pages. 

Next scroll down to the Component Grades section to see how it stacks up for Growth. 

“A” means that it's in the top 5% of all stocks for that category. Truly cream of the crop. Whereas “B” is still pretty impressive as that denotes a stock in the top 20%. 

What to Do Next? 

  1. Review all of your stocks to make sure they meet the criteria noted above. Just go to WallStreetZen.com and use the search box to review your stocks 1 by 1. Start here >
  2. STRONGLY consider selling those stocks that don’t make the grade. That’s because history shows poor grades = poor performance. 
  3. Find better stocks. Continue your search of stock tickers to add more with the best Zen Ratings. Note that there are currently 920 A & B rated stocks which may seem like a daunting task. Thus, you may want to skip to step 4…
  4. Discover my Zen Investor portfolio where I hand pick the best stocks based on their Zen Ratings. Currently there are 16 top Zen Rated stocks in my portfolio which is likely a better starting point for your exploration. 

Discover the Zen Investor & 16 Top Stocks > 

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)

Editor-in-Chief of WallStreetZen

Want to get in touch? Email us at news@wallstreetzen.com.

Keep Reading

See All News
5 Stocks to Watch: Week of 12/16/2024
5 Stocks to Watch: Week of 12/16/2024
Today's list includes Teledyne Technologies (NYSE: TDY), a company with many avenues for continued growth; Procore Technologies Inc. (NYSE: PCOR), which just got a 23% price target increase, Build a Bear Workshop Inc. (NYSE: BBW), a company building success one bespoke teddy bear at a time, M/I Homes (NYSE: MHO), which is also our Stock of the Week, and Boston Scientific Corp. (NYSE: BSX), which is on a run that we think could continue.
2 months agoJessie Moore
TDY
MHO
BSX
BBW
3 New Strong Buy Ratings from Top-Rated Analysts: 12/13/2024
3 New Strong Buy Ratings from Top-Rated Analysts: 12/13/2024
Royal Caribbean Cruises (NYSE: RCL) and Carnival Corp. (NYSE: CCL) both got Strong Buy ratings and price target upgrades this week. In a different sector but similarly hot is Boston Scientific Corp. (NYSE: BSX), which a top-rated analyst believes could see significant upside in the upcoming year. Here’s the story:
2 months agoJessie Moore
BSX
Hot or Not, Stock Market Edition: 12/13/2024
Hot or Not, Stock Market Edition: 12/13/2024
What’s hot? Zeta Global Holdings (NYSE: ZETA), which recently experienced massive losses but appears to be recovering, as well as Nvidia (NASDAQ: NVDA), which just erased all of its recent losses. What’s not? SoundHound AI (NASDAQ: SOUN) isn’t as hot as its 500%+ gains YTD might imply; Dave & Busters Entertainment’s (NASDAQ: PLAY) big comeback may not be as it seems. Keep reading for more — and check out the biggest winners and biggest losers on WSZ.
2 months agoDan Simms
SOUN
NVDA
ZETA
3 New Strong Buy Ratings from Top-Rated Analysts: 12/12/2024
3 New Strong Buy Ratings from Top-Rated Analysts: 12/12/2024
Let's take a peek into the brains of some of Wall Street's top-performing analysts. This week, Teledyne Technologies (NYSE: TDY) got a huge price target increase, ServiceNow Inc. (NYSE: NOW) got accolades for new offerings, and Yext Inc. (NYSE: YEXT) crushed earnings. Here's what we're watching:
2 months agoJessie Moore
YEXT
TDY
NOW
Hot or Not, Stock Market Edition: 12/12/2024
Hot or Not, Stock Market Edition: 12/12/2024
Alphabet (NASDAQ: GOOGL) has been in the midst of a heat wave following a breakthrough in quantum computing, and CarGurus (NASDAQ: CARG) continues its upward ascent. Things weren’t so hot for Albertsons Companies (NYSE: ACI) and Oracle Corporation (NYSE: ORCL), which have both experienced losses this week. Let’s dig into the deets.
2 months agoDan Simms
CARG
ORCL
WallStreetZen does not provide financial advice and does not issue recommendations or offers to buy stock or sell any security.

Information is provided 'as-is' and solely for informational purposes and is not advice. WallStreetZen does not bear any responsibility for any losses or damage that may occur as a result of reliance on this data.