Does growth equal profit?

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Market researcher IBISWorld predicts that Voice Over Internet Protocol (VoIP) service will be the top growth industry (nearly a 150 percent expansion) over the next decade. The firm expects the second-best performing industry to be retirement and pension plans, at about a 134 percent hike, followed by e-commerce/online auctions (124.7 percent) and environmental consulting (120.3 percent).

But investors beware: Growth performance does not necessarily equate to profit. Over the last 8 decades, “you’ll find that . . stocks of slow-growing companies in slow-growing industries clobber growth stocks,” says Russell Wild of Global Portfolios.

“What’s true for the stock market as a whole and for industry sectors is also true of individual companies,” Wild points out. As an example, he compares Hormel Foods (NYSE: HRL; Price: $38.45) to Microsoft (NASDAQ: MSFT; Price: $30.48). He says most people 10 years ago would have predicted that Microsoft would grow bigger than Hormel, and they would have been correct. However, he points out, stock-performance-wise, “Hormel has Microsoft beat by a mile,” with its 6.72 percent annual return versus a minus-2.62 percent annual return, respectively.

Peter Cohan of Peter S. Cohan & Associates says it will be difficult for investors to profit from VoIP stocks because of the low rates that VoIP companies charge their customers. However, he believes that retirement and pension plans, e-commerce and online auctions, and environmental consulting have good profit potential, because “people are willing to pay for the services, and the costs of delivering them are not too high.”