The FTSE 100 is up almost 7% in a month. It’s clear that even though the market is volatile right now, there’s the potential to make money by picking the right growth shares. I believe there are key characteristics to filter when picking the right stocks. So what’s the secret?
Best features to note
To start, a key feature is selecting stocks from sectors with strong momentum. Even if an individual company’s doing well, if it operates in a declining sector, it’s unlikely to deliver outsized gains for several years.
In terms of specific areas, obviously AI and tech are sectors that stand out with good potential right now. Yet apart from that, FinTech and renewable energy are other parts of the market that I think have very good chances of outperforming in the coming decade.
From there, the next step is to own a portfolio of growth shares, not just one. Sure, I’d like to think that I could pick one stock and have it double in value. But no one can predict the future. If a stock underperforms, it’s game over.
Instead, owning half a dozen or more companies means that the chances of one doing well increase. Then, even if another firm doesn’t do that well, the overall performance of the portfolio will be smoothed out.
Finally, the company’s size matters. For example, Nvidia has a market-cap of £3.62trn. It’s going to be hard for the stock to double in value, given that it’s already a very large firm. However, picking companies that are smaller can make it easier to enjoy large price growth. This should be caveated, as if an investor targets penny stocks they can carry higher levels of risk.
Beefing up
One particular company I believe fits the bill is Applied Nutrition (LSE:APN). The stock’s up 94% in the past year. With a market-cap of £541m, it’s well positioned as a decent-sized company with scope for significant growth.
It formulates and sells sports nutrition products such as protein powders and energy drinks. The global shift toward health and fitness is no longer a niche trend and it’s quickly becoming mainstream, with Applied Nutrition having a large market.
It’s not just bodybuilders who care about supplements but also everyday gym-goers. The company has positioned itself right in the middle of that demand, with over 120 products spanning performance through to wellness.
Why could it double? For a start, it has almost doubled in the past year, so it has a good track record. But from here, it has so many things going for it.
Continued sector growth, international expansion, operating leverage from scale as it gets bigger, along with a host of other factors. If revenues keep compounding at double digits and margins hold, the share price should mirror the move from the past year in the coming years.
One risk is that some might see the business operating in a competitive, sometimes faddish industry. Further, raw material costs (like whey protein) can be volatile and squeeze margins. Even with this concern, I think it’s a stock that could be considered by investors.
