Do You Have the Guts to Be a Growth Investor?
"Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
Few people can claim they own a stock that's increased in value 30 times over. But the reason for that isn't because there's a lack of investors with a smart head on their shoulders; it's because there simply aren't enough investors with the stomach to weather everything that nabbing a 30-bagger involves.
It only takes one or two highly successful stock picks to make a prosperous career as an investor, but there are three big things standing in the way of such success:
- Any rocket stock with such price appreciation will look expensive on the way up, and it's very difficult to avoid anchoring on past price points.
- A stock that grows 30 times over is likely to be very volatile, creating a lot of unease for the tepid investor.
- One has to keep an eye on future prospects -- not past performance -- to continue holding a stock and not selling it once it doubles or triples to lock in gains.
Though such stocks and stock pickers might be hard to find, they do exist. Below, I'll show you four stocks that might look like trouble right now, but that some of our greatest growth investors have the temperament to continue holding. At the end, I'll offer you access to the one growth company Fool co-founder David Gardner is most excited about for the coming years.
"Unapologetically looking for multibaggers"
That's the motto for the Rising Star team of Dave Meier and John Reeves, who have a real-time portfolio that Fools can view absolutely free. Dave and John are aiming to replicate the kind of success other famous growth investors have had in the past.
But as you can see, the past six weeks haven't been kind to them. All four of these are either active recommendations or stocks the two are very bullish on.
Price March 21, 2012
|Fusion-io (NYS: FIO)||$29.91||$22.00||(26%)|
|Infinera (NAS: INFN)||$7.83||$6.73||(14%)|
|InvenSense (NYS: INVN)||$20.58||$13.29||(35%)|
|Solazyme (NAS: SZYM)||$15.05||$9.75||(35%)|
Fusion-io specializes in helping servers process enormous amounts of data. Dave and John originally pegged the company because "with more than 9.5 million servers hitting the market in 2011, and more expected in 2012, there's ample room for growth as Fusion-io's technology gains acceptance."
Alas, when earnings came out last month, they disappointed. Not only did GAAP earnings come in at a loss of $0.05 per share, but margins also contracted. But one quarter isn't enough to scare off focused investors, and Dave and John still believe long-term trends favor Fusion-io.
Infinera is in much the same business of big data as Fusion-io. The company's photonic integrated circuits allow for cost-effective data processing. John and Dave have actually bought shares on threedifferentoccasions. The pair believes that "Infinera is the only company with a commercially available photonic integrated circuit, a true game-changing technology that helps companies scale up their networks in an efficient, effective manner."
But when earnings came out, the numbers disappointed investors. Dave and John, however, believe that the company's new DTN-X product will be dominating the market for years to come, and big telecommunications customers will soon be buying up the company's technology.
A pair of 35% losers
Usually, it's not easy holding on to companies that have fallen 35%, but that comes with the territory when you're a growth investor. John and Dave originally bought InvenSense because of the company's valuable microelectromechanical systems technology. In its simplest form, this allows smartphones, tablets, and video game controllers to react to movement and change displays through the use of motion sensors.
The company took an absolute pounding after cutting its outlook last week. But it wasn't entirely InvenSense's fault. As fellow Fool Evan Niu points out, "some important customers were surprised by temporary component shortages in new LTE smartphones, which forced some delays in product releases."
Finally, we have Solazyme, which makes tailored oils for fuels, chemicals, and nutritional products. Though Dave and John haven't bought shares yet, others have. The company has actually been performing remarkably well for a biofuels start-up, but the market is simply worried that the government won't continue buying the company's high-priced bio-diesel fuel. The problem: The market is completely ignoring Solazyme's diversity of product offerings.
All four of these companies may be having growing pains right now, but if you have the stomach to be a truly successful growth investor, they deserve a spot on your watchlist.
Catch a 30-bagger?
I didn't just pull that number out of a hat. Fool co-founder David Gardner has a 30-bagger to his name right now. He recommended buying shares of priceline.com in May 2004 for $23.71. With yesterday's closing price of $738, he's sitting on over a 3,000% return!
If you'd like to know what tomorrow's Priceline could be, check out "Discover the Next Rule-Breaking Multibagger." Inside this special free report, you'll get the name and ticker symbol of the medical field's next big success story. Get your copy of the report today, absolutely free!
At the time this article was published Fool contributor Brian Stoffel understands the irony of using a quote from a value investor to start an article focused on growth. He owns shares of Solazyme. You can follow him on Twitter, where he goes by TMFStoffel.The Motley Fool owns shares of Solazyme, priceline.com, Fusion-io, InvenSense, and Infinera. Motley Fool newsletter services have recommended buying shares of priceline.com and Infinera. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.