This Is What a Real Growth Opportunity Looks Like

If you wanted to add some growth to your portfolio, you might consider the Fidelity Growth Company fund. After all, it's a fund that invests in companies with "above-average growth potential." And yes, its top holdings do seem like they'd be good ways to get growth:

Stock	Weight Within Fund
Apple	3.8%
Google	3.3%
Microsoft	2.9%
salesforce.com (NYSE: CRM  )	2.5%
Starbucks (Nasdaq: SBUX  )	2.1%
Cree (Nasdaq: CREE  )	1.7%
Red Hat (NYSE: RHT  )	1.7%
Visa (NYSE: V  )	1.6%
Wal-Mart Stores (NYSE: WMT  )	1.4%
Cisco Systems	1.4%

Data from Morningstar as of Jan. 31, 2009.

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

Stock	Analysts 5-Year Growth Estimate
Apple	18.6%
Google	22.1%
Microsoft	11.4%
salesforce.com	30.9%
Starbucks	15.7%
Cree	22%
Red Hat	19.6%
Visa	19.9%
Wal-Mart	10.8%
Cisco Systems	11.8%
Average	18.3%

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 18% the magnitude of growth you'd like to get out of your aggressive growth stocks?

Now 18% is not bad, and if you're happy with it, then you can stop reading and stick with your high-profile "growth" stocks. But if you're looking for more -- potentially much 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 Amazon.com when it launched in 1995. It was a tiny company, one of the first e-tailers, and it had the rising tide of the Internet -- merely the greatest development of the past 25 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% 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 20 years for the Indian market to reach half the size of the U.S. market. That would mean industry tailwinds of 20% annual growth ... for two decades!

As for who benefits, think about a company like Dr. Reddy's Laboratories. Although this Indian company is earning most of its revenue today selling low-cost generics in Europe and the United States, 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 Global Gains. He does not own shares of any company mentioned. Dr. Reddy's is a Global Gains recommendation. Microsoft and Wal-Mart are Inside Value recommendations. Google is a Rule Breakers pick. Apple, Starbucks, and Amazon.com are Stock Advisor selections. Motley Fool Options has recommended buying diagonal calls on Microsoft. This is what the Fool's real disclosure policy looks like.