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Introduction - In the investing community, never has there been a term more misunderstood than growth stock. To many, a growth stock simply means a name stock or a stock with a lot of demand. To others, it is just one of the stocks selling at high earnings multiples.

Being "name" or popular is not necessarily synonymous with true growth.

01. Spend a Penny - There is no sense in reading a word about growth stocks until you have learned the fundamentals of general stock market investing. In this chapter, I will quickly survey the basic methods of stock measurement and evaluation.

Of the many measuring devices used by security analysts to gauge the value of a stock, the grice-earnings ratio is by far the most popular.

02. Growth Stocks? - What are growth stocks? There seem to be as many answers to that question as there are investment analysts and stockbrokers. Here is one o£ the more quotable definitions, offered by the Valley National Bank in Phoenix, Arizona:

If a stock yields 5 per cent it can't be any good. If it yields 2 per cent, it must be hedge against inflation since there is no other reason to buy it.

03. Tested Formulas - The most difficult problem facing growth-oriented investors is: How can you be sure that today's growth stocks will not become tomorrow's flops? Past performance is no guarantee of future action. The market has too often based its valuations on the assumption that what has gone before will continue for an indefinite period, which is, of course, by no means true.

04. Buy + Sell - You may have heard of a dancer-turned-investor named Nicholas Darvas who startled Wall Street with his How I Made $2,000,000 in the Stock Market. The book distinguished itself in the simplicity of its approach. He dealt only in stocks which were "in tune with the jet age," growth stocks. He selected only those which appeared to be developing trading activity and strength. No attempt was made to buy a stock at the bottom; instead, he took action only after it had begun to rise.

05. Pitfalls - For the professionals, the new issue market provides a fertile field for growth investment for the simple reason that it is by far less exploited.

Along with a host of new issues of dubious merit, there are many enterprises of high financial standing which happen to "go public" late. Some of the greatest capital gain opportunities have been made in these long-established situations as well as in brand new companies which show special promise in new product development.

06. Stability + Growth - Strictly speaking, there is no such thing as a nonspeculative stock. The moment you take a position in a stock you are speculating, sometimes without realizing it.

From time to time the market returns for "safety" to such classic defensive securities as utilities, food, department stores, etc., when the economic weather is getting rough. They generally hold up better in a bad market, though sometimes only a shade better.

07. Conservative Growth - For years, savings and loan associations have been generally slighted as a medium of investment and were just about the last thing anyone associated with the word "growth."

Now, suddenly, the word is getting around that maybe savings and loan firms are not as dissociated from growth as they were thought to be. As a matter of fact, growth has been stirring in savings and loan companies.

08. Convertible Bonds - There are always people who are ready to advise you to stay out of the market altogether. "The market is just too high for anybody to stay in," they say. On the other hand, loyal followers of common stocks, especially the growth-type stocks, insist that common stock is the only vehicle for participation in the nation's explosive growth.

09. Discount Bonds - Besides convertible bonds, there are other types of bonds which could be investment vehicles for substantial capital gains.

Some time ago there was a newspaper story of a bedridden Massachusetts farmer who swelled his initial $1,500 into millions by hunting out special situations. This farmer thought and read about the stock market every waking moment. He knew by heart the capitalization and earning power of almost every issue on the New York Stock Exchange.

10. Growth Profits - Short cut no. 1:Sbic—The Investment Fund With Built-In Growth

What if you can afford neither the time necessary for developing your own portfolio nor the expenses involved in professional management? A new investment vehicle called SBIC (Small Business Investment Company) might be your answer.

An SBIC is a finance company organized under the Small Business Investment Act of 1958

11. Bargain-Counter - Over a long period of time, solid investment values remain the most durable criteria in the selection of equities. In these days of generally high market prices, however, they have become rarities, especially available at bargain-counter prices.

hen we say solid investment values, we have two things in mind: (1) a high degree of market stability and (2) long-range growth potential.

12. Cyclical Stocks - The downside risk is always at a minimum when you buy stocks at "deflated" prices or in industries which are currently in disfavor. The market is always in the habit of overbuying stocks of favored industries or overselling "deflated industries."

Actually, deflated industries are often just in the "down" cycle of the whole economy, especially when they are plagued by excess capacity.

13. Over-the-Counter - Relatively Unexploited Area

Because of the growing scarcity of attractive listed stocks, an increasing number of professionals are turning to over-the-counter stocks in search for better values. They are potentially better values because they have been less publicized and therefore less exploited.

The over-the-counter market is the least understood, not only for the average investor, but also for the professionals who have taken a skeptical attitude toward it. This situation, however, is changing rapidly.

14. Oils + Chemicals - Just as yesterday's glamour stocks have become today's lacklusters, so today's favorite can easily be tomorrow's wallflower. A growth rating can return to one industry as easily as it departs from another.

Take the oil industry, for instance. Once the prime growth favorite of Wall Street, it has lost much of its attraction. Formerly, oil securities were so highly regarded that the market evaluated them primarily on the basis of reserves or acres, rather than earnings.

15. Drug Industry - Wall Street has traditionally held drug stocks in high esteem because of their outstanding growth-and-defensive characteristics—a rare combination of two ordinarily conflicting qualities.

The growth status of drug companies comes from their heavy emphasis on research as the launching pad for endless new products. On the other hand, their defensive qualities are based on the virtually recession-proof or even depression-proof nature of their products, since nobody can avoid buying necessary drugs even in times of depression.

16. Booming Service - Not too many investors would link growth with such everyday, unglamorous things as equipment leasing, automobile renting, business-credit checking and employment agencies. Yet growth is there.

As our economy matures and becomes wealthier, the business service industries assume increased importance. A society well supplied with goods and money can afford the conveniences it desires.

17. Discount Retailers - The enormous growth of suburban shopping centers and discount stores in the past decade is reflected in the dramatic rise of E. J. Korvette, whose stock rose from a 1959 low of l7s to a high of 128d in 1961. Even in 1961 you could have bought the stock for 3l½.

As the discount retail leader, Korvette has benefited from what Eastman, Dillon, Union Securities & Go. called "new consumer spending patterns" by transforming itself from an operator of small discount stores into a regional department-store chain of major outlets to be augmented by a far-reaching expansion program involving the construction of three to four new stores each year.

18. Real Estate - Today, according to the National Association of Real Estate Boards, more Americans than ever before are participating in the ownership of income-producing real estate. People in all walks of life are seeking secondary income through real estate investment. Many prefer a tangible piece of property such as a farm, a house, or an apartment building to a mere piece of paper like a stock certificate.

19. Prefabricated - While the cities swell with new public housing projects and luxury apartment dwellings, and the real estate investment industry counts its profits, still another growth area is developing in the home building field.

Thanks to a nationwide demand for more simple, less expensive housing, three young industries have come to the attention of growth stock specialists: shell houses, prefabricated houses and mobile homes.

20. Changing Fashions - In his revealing article called, "Changing Fashions in Finance/* veteran analyst Eldon A. Grimm of Walston & Co. compared the styles and fashions in common stocks with those in women's clothes or hairdos. Just as ladies go from one fashion to another, so stocks go in and out of style. The plunging neckline or the length of skirt is forever rising or falling like the stock market.

21. Education - A recent survey has shown that every person in the United States now spends $1,000 annually just to cover costs of educating children and teen-agers. And American industry spends more than three times this amount to meet the challenges of tomorrow.

Education has indeed become the country's biggest industry— bigger even than any of the industries which function primarily to feed, clothe and house us.

22. Hollywood - Only a little while ago, motion picture stocks were one of the most unpopular security groups. Today, brokerage houses are talking in glowing terms about the hidden asset values of these stocks.

By hidden asset value, Wall Streeters mean, among other things, the film libraries of post-1948 features which movie makers had already written off the books. For instance, Metro-Goldwyn-Mayer's unreleased feature films which are being carried on the books at only a nominal value, are estimated to have a market value in excess of $25 million. Or, in the case of Columbia Pictures, it has about 275-300 post-1948 feature films available for television.

23. New Leisure - Leisure is America's fastest growing occupation. The trend is toward more active types of sports and other pastimes. Fastest growing sports include golfing, hunting, archery, fishing, skiing and, of course, boating and bowling.

Americans spent a total of $43 billion for pastimes in 1960 against $41 billion in 1959. By the end of the 1960's, leisure spending is expected to reach $50 billion.

24. Vending Machine - It's enough to make a salesman shudder. Wherever you go, the persuasive smile of a clerk and the pleasant thank-you of a cashier are being replaced by the blank, chrome stare of vending machines.

Whether you miss the old, personal, human touch or not, it's pretty clear that not only is automatic merchandising here to stay, it also has a huge growth potential.

25. Applied Science - In a broad sense, technology stocks cover a far wider area than the applied science group as they are generally taken to mean. Important technological changes, for instance, are taking place in the hitherto technically conservative food industry, which could materially affect its operations over the coming decade.

Primarily, however, technology stocks concern those companies whose success rests on the application of brainpower to an engineering type of activity.

26. Defense Industries - In the forefront of the defense industry is the aircraft-turned-missile business, now more popularly called the aerospace industry. The aerospace companies lean heavily on electronics, as a substantial portion of a defense dollar goes for electronic gear.

he recent changeover in our nation's defense from manned aircraft to missiles has brought a far-reaching and fundamental change in the industry structure.

27. Computer Stocks - The potential for the computer industry is huge. In just ten years between 1951 and 1960, sales of large-scale computers have grown to about $1.5 billion. By 1965, the market is expected to skyrocket to some $4 billion and to about $8 billion by 1970.

Despite their glamour, electronic computers haven't proved profitable for their manufacturers, with the exception of IBM. Makers of giant computers like Sperry Rand have been under particularly heavy pressure because of heavy research and development expenditures.

28. Photocopying - The pace of office automation has been greatly accelerated by the new photocopying devices designed to cope with the growing pressure of ever-mounting paper work. "Photocopier" has become a magic word in Wall Street and has contributed to the creation of several star performers, including American Photocopy, Xerox Corp. and BBM Photocopy, which climbed from 8 to 60 for a 700 per cent appreciation in less than a year because of its new "photocopier" based on the electrostatic principle!

29. Electronics Investment - Because of the general market overevaluation of electronic^ stocks there have been increasing talks of an electronics "doom." Another reason for this predicted doom is the currently preponderant dependence of the electronics industry on defense spending. As is well known, the sales to the government constitute 55 to 60 per cent of total five to six billion dollars of electronics output.

30. Electronics Stocks - Since there never has been the slightest doubt about electronics being the biggest growth area of our day, the question is obviously one of choosing the right stocks at their right prices. In order to do the right picking, you would do well to know precisely its areas of coverage, its current stage of development and its probable frontiers of tomorrow based on its already discernible trends.

31. Risk Out - In no other area does rapid technological obsolescence make investment more hazardous than in electronics. This is especially true of small, early-stage companies where replacement of one technological skill by another might make or break the business.

An excellent way to reduce risks of this kind is to buy a package of electronics stock. Better still, let an expert do the buying for you. And it's easy to arrange.

32. Salt Water - President Kennedy called the salt water conversion project more important than putting a man in space. And for a good reason.

The world's population is increasing so fast that the supply of fresh water cannot keep up with its speed. In a September 1961 study of Struthers Wells Corporation by Troster, Singer & Co. it was stated, "Throughout the world there are enormous areas plagued with perpetual drought or near drought.

33. Inner Space - In a recent issue of Science and Securities, Harris Upham & Co. used the term "inner space exploration" to describe the nation's efforts in two vital fields—oceanography and the Navy's antisubmarine warfare.

"Inner space" has great military value, considering the 400 submarines in the Russian fleet. That's why the Navy has planned a ten-year program costing more than $900 million to multiply its efforts in oceanographic research.

34. Outer Space - In the race to the moon between the U.S.A. and U.S.S.R., hundreds of billions of dollars will be spent in the next decade or so on projects which, only a few years ago, would have sounded like things existing only in science fiction.

Leading this dramatic journey into space are companies mostly operating in the aircraft-turned-missile industry. It's rather ironic that the nation's most glamorous projects are predominantly in the hands of companies with their bread-and-butter business formerly or still in building planes, the very opposite of glamour.

35. Lasers & Masers - In their June 1961 issue of Science and Securities, Harris Upham analysts called laser "one of technology's most revolutionary developments to date," whose perfection is said to be leading to "myriad new uses of light, some of which will revolutionize manufacturing techniques, while others will provide surgeons with important new instruments."

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