Bull market shocks in the growth stock opportunities Money Tips

Category: Money Tips Date: 2007-03-23

Experienced a doubling of the 2006 index rising, the market has significantly increased the volatility of this year. In particular, after the Spring Festival, but also show wide shocks, including February 27 one-day 9% decline in the index for many investors to have a lingering fear.

We believe that the market volatility increased for many reasons, but the more crucial factor is the index rose to 3,000 points, 1,000 points in the vicinity of the static valuation is no longer cheap. In Shanghai and Shenzhen 300 Index, for example, according to days relative to investment system's statistics, the current price-earnings ratio of its component stocks has reached 31 times. To support such a high price-earnings ratio valuation of the growth performance of listed companies raised a higher requirements. In the current market environment, investing in growth stocks is to avoid market volatility risk, and access to lucrative long-term preferred selection.

First of all, China's macro-economic growth of corporate earnings provide a good environment. In 2006 China's GDP growth rate of 10.7%, which is the fourth consecutive year of double-digit growth. Government Work Report to the 2007's target is an increase of 8%, and from the first 2 months of this year, the statistical data shows that estimated that this year will continue to be a year of rapid growth. This macro-economic environment to support the core competitiveness of enterprises are profitable sustained, rapid growth.

Second, the bull market, investors are willing to pay for the valuation premium for growth stocks. Suppose a company, in 2006 price-earnings ratio is 40 times higher than the average market valuation of 31 times, but if the company's net profit after tax in the next two years to maintain an average of 40% growth. Then its price-earnings ratio in 2007 will drop to 28.6 times, 20.4 times in 2008. In other words, high-growth companies that can support higher than the market average static valuation, with annual earnings growth of the dynamic price-earnings ratio will rapidly drop to a reasonable area.

Third, the performance can be maintained sustained and rapid growth of the company, often with the core competitiveness of enterprises, and growth of the industry leader. Invest in such companies, distribution of shareholders to share the company's growth, access to lucrative long-term returns.

From the growth perspective, growth companies can be divided into two broad categories: extension type and endogenous type. Extension-type growth is through the backdoor, restructuring, mergers and acquisitions, asset injection, the overall performance of the company by means of listing to achieve the explosive rise in the short term. As previously not even pull seven daily limit of Hudong Heavy is the controlling shareholder through the issuance of the implementation of targeted, high quality assets into the listed company and achieve epitaxial-type growth. Endogenous growth is the company through its own normal operations, such as increase production capacity, develop new products, opening new markets to achieve the continuous improvement of corporate profits. Under normal circumstances, endogenous growth more sustainable, but compared with epitaxial-type growth in the short term, the growth rate should be smaller. In the real operation, the extension-type growth and endogenous growth is often blended together, growing enterprises generally the same time, the use of these two methods to achieve growth.

To build a growing portfolio of stocks, sectors and individual stocks will need to combine the two levels. Configuration in the industry, a growing stock portfolio, their stocks do not necessarily all from the high-growth industries. Selection of high-growth industries, mainly starting from the macro analysis, in accordance with national industrial policy, domestic and international economic environment, industry life cycle and so on, to make their judgments. For example, in 2007, investors 3G, railways, banking and other industries has placed a high growth expectations. In selected industries, you can top-down, and then select the leading companies within the industry into the mix. Another selection of growth stock ideas is to take a bottom-up approach to build a portfolio through the selection of individual stocks. The logic is: Yes, the industry growth in general, but the industry there is a very good growth stocks; or some of the smaller industries, industry characteristics are not clear-cut, top-down approach to take may ignore these industries, then self Under the previous method of selection of individual stocks is even more applicable.

Regardless of which way to build growth stock portfolio is the need for long-term development of listed companies to conduct a detailed analysis of the trend, and only have the core competitiveness of enterprises in order to achieve sustained growth and bring long-term lucrative returns for investors.