From the editor

By Tony Featherstone, editor

Welcome to the October issue of ASX Investor Update. After spending so much time on income-investing and dividend topics this year, this issue focuses on so-called "growth" stocks.

The distinction between income and growth stocks is seldom clear-cut. Some of the best-performed companies this year have provided high dividends and capital growth, rather than one or the other.

Wilson Asset Management chairman Geoff Wilson argues in our Feature Story that the outlook for corporate earnings growth remains subdued and that the market needs to get used to lower price-earnings (PE) multiples, to reflect lower growth prospects.

He says the best place to find growth companies is in the small and mid-cap industrial sectors, where companies sometimes grow faster than the economy and are often under-researched.

Still on the growth theme, Bell Potter Securities sharebroker, John Reynolds, explains the difference between growth and income stocks, and the features, benefits and risks of buying cyclical ones whose fortunes are closely tied to those of the economy.

Reynolds says it is time for investors to add more growth into their portfolio, but that a cautious approach is needed as corporate earnings growth could be low for some time.

Reynolds says the best time to buy growth stocks is near the final few cuts in interest rates, and provides a sample portfolio of 10 and tips on constructing a growth portfolio.

Robert Brain challenges conventional wisdom about growth stocks is his article on technical analysis. As national director of the Australian Technical Analysts Association (ATAA), he studies share price patterns and educates investors on their use.

He believes tools such as economic clocks, which help investors gauge market cycles, are dangerously simplistic, and that looking for stocks in traditional growth sectors, such as retailing, media or construction, can lead to missed growth opportunities in other sectors.

Elsewhere, Wilson HTM senior research analyst, Ivor Ries, gives good advice on investing in internet companies, some of which have been the market's best growth stocks in recent years. His "Best internet stocks" talk is part of ASX's popular new ASX Investment talks series.

And author Michael Kemp comments on traps when using the PE multiple, which is a widely used valuation tool.

Be sure to watch the video with Australian Securities Exchange chief executive, Elmer Funke Kupper, in this issue. I interviewed Elmer about market trends, such as high-frequency trading and dark pools, and what they mean for retail investors. It's a good opportunity to hear about exchange developments and initiatives from a retail-investor perspective.

We hope you enjoy this issue of ASX Investor Update. As always, do not act on the ideas or themes in the articles without doing further research of your own or seeking advice from your sharebroker or financial adviser.

About the author

Tony Featherstone is consulting editor of ASX Investor Update. He is a former managing editor of BRW and Shares magazines.