No matter what the broad market is doing (within reason) there will always be some stocks doing well.
Even in bear markets, you can find growth stocks – you just have to look harder for them.
Growth stocks have consistent above average growth in revenue and earnings. Without these to attributes, stocks fail the growth test.
Reward Stock Growth
Investors also want to see that growth rewarded in the stock price, so a growth stock should have an ascending price line over time.With day-to-day volatility, it is sometimes hard to figure out where a stock is going as it bounces along with the market.
Long-term investors aren’t as concerned with day-to-day changes as they are with consistent movement.
There are two ways to check a growth stock’s price against historical numbers to see if it is consistent in its continued upward climb.
Trade Ahead of Averages
You should expect the stock to trade ahead of its 50-day price moving average most days. This gauge may not be the most reliable since it covers less than two months of trading, but it does give you an idea of how the stock is doing.The other gauge is the 200-day price moving average. The stock that doesn’t consistently beat this mark has slipped out of the growth mode.
The advantage of looking at moving averages is you get a picture of how the stock’s price is trending over time rather than how it is reacting on a daily basis.
This smoothes out abnormal highs and lows so investors have a realistic idea of where the stock is headed.
Short-Term Growth
Many people feel the 50-day moving average may be more helpful for tracking growth stocks since the expectation is for more short-term growth.One place to find 50-day and 200-day (and other) moving averages is MorningStar.com.
Look a stock under the quote function and go the “Charts” function. There you will find a “Technical” tab over the charts, which is where the moving averages are plotted.
You can see where a stock is trading relative to these two key indicators.
Moving averages are only one consideration, but if a stock is not consistently trading at or above its 50-day moving average, you need to know why.
