Buying growth stocks and holding onto them for the long term can be one of the greatest ways an investor can build their wealth. By acquiring the shares when the company is in its early days and remaining patient over the years – taking advantage of all the dividends paid along the way – an investor can let the power of compounding work its magic, thus giving you a good chance at beating the returns of the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).
My fellow Motley Fool writer Owen Raskiewicz yesterday named the four growth stocks he would buy if he had $10,000 to invest. While each of the companies he chose represent fine businesses, I thought I would also share which companies I would buy (or top-up on) if I had the same capital to spend.
1. Greencross Limited (ASX: GXL) is a provider of veterinary services which is expanding rapidly across Australia – both with its number of vet clinics and retail stores. It recently announced that it was acquiring CF Group Holdings Pty Ltd (“City Farmers”) which should further strengthen its position in the Western Australia market. While the stock is trading on a projected P/E ratio of 40, strong growth is anticipated in the coming years and it also offers a 1.4% dividend.
2. M2 Group Ltd (ASX: MTU) is an excellent way for investors to gain access to Australia’s booming telecommunications industry, and has plenty more room for growth than the much larger Telstra Corporation Ltd (ASX: TLS). Armed with subsidiaries like Dodo and Primus, M2 Group will expand organically over the coming years and is a solid bet for the ultra-long term.
3. Yellow Brick Road Holdings Ltd (ASX: YBR) is a wealth management group very early in its growth days. In fact, it hasn’t even hit profitability yet (it is expecting to make a maiden profit in 2015). With interest rates set to remain low for some time yet, demand for Yellow Brick Road’s services should continue to strengthen. Now seems like a fantastic time to climb on board with shares trading at just 68 cents.
4. Nearmap Limited (ASX: NEA) could well be the riskiest stock to make this list, given its P/E ratio of 40 and market capitalisation of just $137 million. However, Nearmap has enormous growth potential both in Australia and overseas as a provider of ultra-high resolution aerial photographs. Its maps and birds-eye photos are arguably even better than those provided by Google Inc.
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Each of the companies mentioned above have the potential to deliver enormous returns over the coming years. While I currently own Yellow Brick Road shares, the others are sitting firmly on my watchlist and could well be my next target.
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Motley Fool contributor Ryan Newman Yellow Brick Road Holdings Ltd and Google Inc.