This Is What a Real Growth Opportunity Looks Like

If you wanted to add some growth to your portfolio, you might consider the Vanguard Growth Equity fund. After all, it's an "aggressive" fund that seeks "long-term capital appreciation." And yes, its top holdings do seem like they'd be good ways to get growth:

Data from Morningstar as of Dec. 31, 2009.

But now let's take a look at just how much growth analysts actually expect from these companies:

Data from Yahoo! Finance.

Now, we all know that securities analysts are notoriously off in their projections, but let's assume that when we average together dozens of forecasts for these high-profile stocks, we at least end up in the ballpark. Assuming that, is 11.4% really the magnitude of growth you'd like to get out of your aggressive growth stocks?

If you're happy with 11.4%, then you can stop reading and stick with your high-profile "growth" stocks. But if you're looking for more, I recommend you read on.

Still with me?
The recipe for truly high growth has a handful of necessary ingredients. They are:

1. A small company.
2. A wide market opportunity.
3. Meaningful macroeconomic tailwinds.

Think, for example, of Intel (NASDAQ:INTC) when it went public in 1971. It was a tiny company, one of the few semiconductor makers, and it had the rising tide of computers -- merely the greatest development of the past 50 years -- helping it along. Now ask yourself: Do any of the companies or industry opportunities in the table above fit that profile at all?

Let me introduce you to one that does
Now consider something like the pharmaceutical industry in India. Today, on average, Indians spend $10 per person per year on drugs. Americans, on the other spend, more than $750! That means the Indian pharmaceutical market needs to grow some 7,400% in order to be as big as the U.S. market is today.

This won't happen next year, or even over the next 10 years. Furthermore, because of discrepancies in purchasing power, the Indian pharmaceutical market may never reach the size the U.S. market is today. But let's assume it takes 25 years for the Indian market to reach half the size of the U.S. market. That would mean industry tailwinds of 15.6% annual growth ... for 25 years!

As for who benefits, think about a company like Dr. Reddy's Laboratories. Although this Indian company is earning most of its revenue today in Europe and the United States selling low-cost generics, it's positioned extremely well to benefit from sales in the Indian market as it grows. It's a domestic company, so it knows the market well, and it specializes in marketing the low-cost drugs that are likely to sell best in India.

This, in other words, is what a real growth opportunity looks like. Dr. Reddy's is a small company with a wide market opportunity that stands to benefit from meaningful macroeconomic tailwinds.

Looking for more?
At Motley Fool Global Gains, we believe that real growth opportunities are available over and over again in the world's emerging markets, simply because these markets are creating so many meaningful economic tailwinds these days. If you'd like to see our other picks from India, China, Brazil, Indonesia and more, simply click here to join Global Gains free for 30 days.

There is no obligation to subscribe.

This article was first published on Jan. 15, 2010. It has been updated.

Tim Hanson is co-advisor of Motley Fool Global Gains. He owns shares of Berkshire Hathaway. Dr. Reddy's is a Global Gains recommendation. Berkshire Hathaway and Intel are Motley Fool Inside Value recommendations. Google is a Rule Breakers pick. Apple, Disney, and Berkshire Hathaway are Stock Advisor selections. Johnson & Johnson and PepsiCo are Income Investor recommendations. The Fool owns shares of Berkshire Hathaway. Motley Fool Options has recommended buying diagonal calls on Microsoft. This is what the Fool's real disclosure policy looks like.