How to Find Growth Stocks that Keep Growing

Newsletter guru Jim Oberweis has found some gems in upstart growth plays like and Green Mountain Coffee Roasters, and in a recent interview with Forbes he explained how he finds such top growth picks.

“Our methodology is focused on the premise that investors tend to underestimate how long growth companies can continue their growth path,” Oberweis says. He says he looks for companies with strong financial performance that is backed up by a qualitative sign that that performance should continue, like a strong market position or ownership of an important patent. He also likes firms that have strong, increasing profit margins, and that operate businesses with high barriers to entry.

On the downside, Oberweis says warning signs that lead him to consider selling a stock include deteriorating financial performance, which can be a sign the firm is losing its competitive advantage. He also discusses how he tries to distinguish between firms that have developed high valuations but still look attractive as investments, vs. companies that have high valuations because of overexuberance.