Moderate Growth Beats a Blowout Stock Any Day

It’s now a great time to be looking at the stock market. We are right in the middle of the third quarter earnings season, and many companies are reporting excellent financial results. When it comes right down to it, the only way to stay “ahead of the street” is to stay on top of the numbers in company reports.

When I’m looking for a new stock opportunity, one important attribute that I seek is a solid track record of growth. In my view, a investment-worthy company has to demonstrate that it has already been successful.

I often find that some of the best wealth-creating companies are the ones that generate moderate but consistent growth to stockholders.

A company doesn’t need a “blowout” quarter to be a good investment. Nor does it need to generate 40% in top line growth to be a major winner on the stock market. There is a role for a few “high-flying” stocks in an equity portfolio, but, for the balance, I find the real winners tend to be those companies that deliver modest top- and bottom-line growth in a consistent manner.

Take, for example, Lifeline Systems Inc. (NASDAQ/LIFE). This company provides 24-hour personal response monitoring services to its subscribers, who are primarily elderly individuals with medical conditions. The company’s main product is a communication device that connects to the telephone line in a subscriber’s home. With the press of a button that is worn or carried by the individual subscriber, a telephone call is initiated to the company’s monitoring center to see if help is required.

It isn’t fancy, and it isn’t very sexy. But guess what, this company generates solid and consistent growth. In its latest quarter, the company’s revenues rose 17% and net income rose 24% over the comparable quarter.

The numbers aren’t earth-shattering, but they do add up. This company has done very well on the stock market over the last five years, and its prospects look great for the future.

If you are looking for investment opportunities in the stock market, don’t just focus on those companies generating the most growth. A modest, consistent grower may just pay off better for you.