High-growth stocks: how I’m trying to make above average returns

Young woman sat at laptop by a window

In a recent conversation with a friend, we were discussing how the concept of returns has been warped by Reddit stocks and cryptocurrency. A few years ago, making 10% return a year from high-growth stocks was seen as very good. Yet with swings in some stocks and coins of 10% within a day, the goalposts have shifted for some. But I’d still stick to more traditional growth stocks for good returns. Here’s why.

Being careful where I invest

The main issue I have with Reddit stocks such as GameStop and AMC is that the high gains are short term and also speculative. As I wrote about recently, gains typically last for a few days before moving back lower. This makes it hard for me to make double-digit returns over the course of several years.

Most of the moves in such stocks are also predominantly speculative. For example, take AMC. The company is a cinema operator that has seen revenues and profits evaporate due to the pandemic. Should shares in this company really be jumping 20% in a day when no news about the business has come out? 

On the basis of the above, I much prefer to look to high-growth stocks that don’t offer me the same questionable attributes as the above. Their growth that’s based on fundamentals can still allow me to make 10%+ gains a year in a sustainable way.

High-growth stocks in promising areas

The first thing I want to do is establish what are going to be the trends that are worth jumping on now, for rewards in years to come. One example that I like is renewable energy.

I think that it’s clear the world is being forced to move to renewable energy for the sake of the planet. Investors are also becoming more conscious of this and are looking to allocate money to this sector. More companies are recognising this and making pledges such as being carbon-neutral or having a net positive impact on the climate by a certain year.

I’d look to play this by investing in some growth stocks that have already delivered high returns. I’d mix in some stocks that haven’t taken off just yet, but have potential.

For example, Greencoat UK Wind is a company that has been set up to invest in UK wind farms. This is one area of renewable energy that has large potential going forward. The share price is actually down 6% over two years, but the generous dividend yield (currently at 5.4%) offsets this.

In terms of a stock that has delivered returns in the past, I’d consider buying SSE. The share price is up 43% over two years, as well as offering a dividend yield that currently is at 5%. It’s focusing on offshore wind farms as well as tripling renewable energy investment by 2030.

Overall, I think both of the above stocks are good examples of how I’m looking to target areas that could have room to grow into the future. Their futures aren’t assured, of course, and there are likely to be bumps in the road. But I feel that they could enable me to achieve above average stock returns.

The post High-growth stocks: how I’m trying to make above average returns appeared first on The Motley Fool UK.

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jonathansmith1 has no position in any share mentioned. The Motley Fool UK has recommended Greencoat UK Wind. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.