Investors searching for Canadian growth stocks need to consider a range of factors. Here are the key ones for maximum portfolio returns.

A growth stock is typically a company that has sales and earnings growth well above the market average.

Although some Canadian growth stocks can be volatile, they can make good long-term additions to a portfolio. They may be well-known stars or quiet gems, but they do share one common attribute—they are growing at a higher-than-average rate within their industry, or compared to the market as a whole, and could keep growing for years or decades.

For a rising portfolio Learn everything you need to know in 'How to Find the Best Growth Stocks' for FREE from The Successful Investor. Canadian Growth Stocks: CGI Group, CAE Inc., Fortis Inc. Stock and more.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Take a broad view when looking for Canadian growth stocks

When considering specific investments and looking at buying or selling growth stocks, we start by putting all the important information we know about a company into perspective. For example, its new invention may be a marvel, but how does it compare to what the competition is doing? Its new project sounds impressive, but how much impact will it really have on the company’s profit? Its debt sounds high—will the company be able to keep up its agreed-upon interest and principal repayments?

Tips on how to lower your risk while investing in Canadian growth stocks

Balance your cyclical risk. Look for at least some growth stocks that have freedom from business cycles. Demand periodically dries up in “cyclical” businesses, such as resources and manufacturing. That’s why you need to diversify. Invest in utility, finance and consumer stocks, along with resources and manufacturers.

Be skeptical of companies that mainly grow through acquisitions. Making acquisitions can speed up a company’s growth, but it also adds risk that can undermine a conservative, safe investing approach. Great acquisitions are rare finds, because many acquisitions come with hidden problems or risks, or they turn out to have been overpriced. A company that expands largely by acquiring other companies may find it hard to offer good value.

However, despite the risks, some acquisitions turn out hugely profitable. So, your growth investing strategy shouldn’t automatically discount companies that have grown through acquisitions. Just keep the risks in mind, and avoid companies that seem unaware of them.

Don’t overindulge in aggressive investments. Aggressive stocks can give you bigger gains than more conservative stocks. But they also expose you to a greater risk of loss. That’s why we recommend limiting your aggressive holdings to a smaller part of your overall portfolio.

Keep debt and market trends in perspective. Debt should be manageable. When bad times hit, debt-heavy companies go broke first. This is one of the best ways you can mitigate risk for your own growth investing strategy.

It pays to keep in mind that the stock market often anticipates trends—but no trend lasts forever. As well, stocks sometimes put on lengthy downturns due to business and economic problems—but the downturns typically go into reverse long before the problems get resolved.

Don’t rule out Canadian bank stocks as growth investments  

Canadian bank stocks have long been one of our top choices for income—and growth.

We’ve long recommended that most Canadian investors should own two or more of the Big Five Canadian bank stocks—Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s mainly because of their importance to Canada’s economy.

With their steady growth prospects, banks remain key lower-risk investments for a portfolio. As well, the big five Canadian bank stocks all have long histories of annual dividend increases.

We believe Canadian bank stocks are still well positioned to weather downturns in the Canadian economy. They trade at attractive multiples to earnings and continue to raise their dividends.

One of the best ways to pick a quality stock is to look for firms that have been paying dividends for at least 5 to 10 years. Dividends are cash outlays that an unsuccessful company—including banks–could never produce. A history of dividend payments is one trait that all the best dividend stocks have.

For Canadian growth stocks there is no single indicator of a company’s prospects

There are many things you can do to put the facts about a company into perspective. None are perfect, since all involve a mental balancing act between high and low estimates, history and the future, and faith versus skepticism. Our goal, through our Inner Circle service and our newsletters, is to put the information in a form that lets us weed out the extremes—excessively overvalued stocks, and those that are suspiciously cheap.

In the long run, investors make most of their profits in investments that offer good value, with growth prospects and an attractive long-term outlook.

Have you stuck with a growth-oriented investing strategy over a value strategy? What do you think about using both?