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The U.S. economy will be lucky to grow at 3% over the next 10 years. I hope you're aiming to beat that figure with your stock portfolio! If so, here are three strategies to ferret out growth in a low-growth environment and four stocks that illustrate these strategies.
Strategy No. 1: Focus on emerging/ high-growth industries
With a $500 billion market value, there can't be any juice left in Apple (Nasdaq: AAPL ) shares, right? Wrong. In the fourth quarter of 2011, Apple grew faster than Facebook. Let's be clear: If you're looking in the rearview mirror and expecting Apple's stock to produce the same returns over the next decade as it did over the last one, you're dead certain to be disappointed. On the other hand, if you're certain the stock no longer has any chance of beating the market, you may be disappointed when you look in the rearview mirror 10 years from now. There is every likelihood that Apple will continue to grow faster than the global economy, which will, in turn, grow faster than the U.S. economy.
LinkedIn (NYSE: LNKD ) CEO Reid Hoffman says that anybody who is or will be in the job market at some point is the CEO of their career. I think he has it exactly right: As the job market for knowledge workers has become more global and therefore more competitive, people are becoming accustomed to thinking of themselves in terms of a marketable brand. Workers will need to develop that brand by investing in their skills and market it by building a professional network. A LinkedIn profile enables you to deliver a credible, highly customized, and evolving pitch to hiring managers and recruiters in a way that a resume or cover letter can never hope to equal. It's like comparing a high-def Samsung television with a black-and-white Zenith.
Strategy No. 2: Focus on emerging superbrands
In a 2006 paper titled Brand Matters, two academics and a financial professional looked at the relationship between brand value and stock returns. Their conclusion: "Strong brands not only deliver greater returns to stockholders than does a relevant benchmark but do so with less risk. This finding holds even when market share and firm size are considered." Higher returns with less risk? That sounds like my kind of investment!
I probably consume fewer than two alcoholic drinks per month, on average, but I'm still familiar with Boston Beer's (NYSE: SAM ) Samuel Adams brand. When I think "Sam Adams," I immediately think of one thing: an infectious passion for, verging on an obsession with, brewing outstanding beers that runs through the entire organization. That's a wonderful brand image for a brewer to be associated with, but, more than that, it is a valuable brand image.
Strategy No. 3: Focus on emerging markets
Two numbers are enough to describe the growth opportunity for Rosetta Stone (NYSE: RST ) , the best-known U.S. brand in language instruction: While the company generates just 18% of its revenues outside the U.S., Nielsen estimates that 90% of the total sum spent on language products and services was spent outside the U.S.
Of course, the very best growth businesses fall under more than one of these categories. LinkedIn, for example, is well-positioned to become the reference brand of professional networking tools. Similarly, Apple is already the world's most valuable brand, according to branding consultancy Brandz.
These principles are straightforward. Why invest in growth stocks? To paraphrase Sutton's Law, that's where the growth is. The challenge is in recognizing a growth stock as such before everyone else does, and thus before it is priced to deliver average (or below-average) returns. You can do so by identifying companies that dominate high-growth industries, own super brands, and have emerging-market opportunities.
Take the first step on a growth path
That happens to be a very difficult thing to do -- don't let anyone tell you differently -- but it's something at which Motley Fool co-founder David Gardner excels. The hundred-plus stock picks he has made over the past decade have, on average, smashed the market, creating real wealth for the members of his services. If you'd like to find out how David's new portfolio service, Supernova, adds the next logical step to this process to help different investors meet different goals, I invite you to enter your email in the box below and you'll receive free access to the SuperNova hub.