To say growth is having a moment is an understatement. The S&P 500 Growth index is only one of just three S&P 500 subset indexes to have risen by more than 25% during the 12-month period ended in July. It also has a 15-year annualized return of 16.6%.

Three secular growth trends have fueled these returns. During the late 2000s, smartphone app stores were launched. This not only created a new industry, it also significantly changed how we use our phones. Netflix Inc. (NFLX) popularized streaming with the launch of its streaming service in 2007. Now we are seeing artificial intelligence (AI) work its way into the global economy.

Secular growth refers to long-term, structural expansion in specific industries or business models that persists across economic cycles. Smartphones exemplify this. Just in the past week, I’ve used my iPhone to order groceries, cash in loyalty awards for dinner at Chicago’s RPM Seafood (yum!), withdraw cash from an ATM and proofread a note. None of this would have been possible 15 years ago.

Identifying stocks benefiting from a secular growth trend can be very profitable. This month, Wayne Thorp shares the metrics that AAII Growth Investing uses to spot such stocks. Key traits include positive and stable operating cash flow and sales growth that is neither too hot nor too cold.

Cash flow funds growth. Companies that generate more cash than they spend from normal business activities can invest in continued growth. Companies with negative cash flow must keep going back to outside sources to keep themselves afloat. It is very difficult to cross the chasm from being a flash in the pan to a fundamentally strong company with sustained growth.

Our research into sales growth found a sweet spot of moderate but sustained growth. Companies with the highest growth rates often flame out. Given the challenges of managing growth and becoming more than just a one-hit wonder, it is not surprising that this is the case.

Also in this issue is a special tax update covering the One Big Beautiful Bill Act (OBBBA). The update covers the key changes already in effect this year along with the changes set to go into effect next year. 

Wishing you prosperity and good health,