InvestWrite Champ: Himax Is Hot, but Wells Fargo Rules - TheStreet

InvestWrite Champ: Himax Is Hot, but Wells Fargo Rules

InvestWrite Championship Essay: 9th grader Cameron Etchart on growth stocks versus income stocks.
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Editor's note: InvestWrite is a national writing competition, produced by The Stock Market Game program.

Meet the Top Three InvestWrite Student Essayists

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InvestWrite, Fall 2007-Spring 2008: Grand Championship Essay, High School

Student Instructions: Research a young, growing company and an older, mature company that both pay income to stockholders as dividends. Describe their earnings or losses and any dividends they paid over the last three years.

How have the companies tried to increase their earnings over that time? Compare and contrast the companies' stock by explaining the advantages and disadvantages of investing in a growth or income stock. Identify which stock you would choose and explain why you would pick that one.

"Going for the Green" by Cameron Etchart

9th Grade

Eagle Home School Co-Op

Reno, Nevada

As a high school student, I am beginning to learn the importance of investing money wisely. In addition, I am learning to play golf and have come to realize that the two are similar; both combine risks and returns. If I am on the fairway, and there is water in front of the green, I must make a decision. Should I choose to invest in a higher risk growth company and hope it soars over the water, or should I invest in a more stable income company and take the extra time to hopefully avoid the hazard? Based on this concept, I have researched two contrasting companies with strong investment potential.

Himax Technologies

(HIMX) - Get Report

is a young growth company which is a designer and producer of semiconductors used in consumer electronics. Founded in 2001, Himax has experienced impressive sales increases since it was listed on the

NASDAQ

in 2006. Over the last three years, Himax has seen net income increase 109 percent. In 2007, Himax announced its first

dividend with a yield of 3.6 percent. These impressive numbers are due in part to Himax's constant technological innovation. For example, it is investing in LCOS technology, a flat screen television technology of the future which Himax believes is superior to LCD or plasma and will become common in future televisions. In addition, Himax is making strategic acquisitions and alliances to bolster its technology diversity. This formula will allow Himax to continue their impressive growth.

Founded in 1852,

Wells Fargo & Company

(WFC) - Get Report

is a diversified financial company offering individual and corporate banking, insurance, and mortgages to people and businesses across the world. Over the last three years, Wells Fargo has seen steady growth with net income rising 5 percent. Because of this, Wells Fargo also has a solid track record of paying timely dividends to its investors. For the last thirteen years, Wells Fargo has consistently raised its dividend with a current yield over 4 percent. Although the housing market in early 2008 is unstable, Wells Fargo is prepared to withstand the storm of the foreclosure crisis because it kept its loans diversified and its risk low. Wells Fargo continues to increase earnings by investing in strong customer relations. For example, Wells Fargo offers rewards to customers for consolidating other services like stock trading, insurance, and loans into the company. Wells Fargo is also helping young small businesses with low interest loans. Due to Wells Fargo's high satisfaction rating, these new customers often stay with Wells Fargo as their needs grow. In addition, Wells Fargo's strong

balance sheet is allowing for strategic purchases of smaller banks that fit into its business model. This increases customer base while establishing trust and security in the community, making Wells Fargo a secure financial company.

In deciding in which stock to invest, I considered many factors. Growth stocks like Himax generally have higher risks and potential rewards associated with them. For example, a potential risk is that one company accounts for almost half of Himax's sales, however, sales growth and diversification opportunities exist. Growth stocks also have high price fluctuations and rise and fall at the slightest economic or company news. Unquestionably, it is important to continually monitor a smaller, growth company's

fundamentals and growth potential.

Established income stocks like Wells Fargo are typically slower growing, and may have a lower anticipated annual return in share price than the typical growth company. However, income stocks normally have lower risk and are more stable because they have more diversified products and customers. They generally also have larger secure dividend yields, which make them ideal for shareholders who are investing in the company for the long haul, not for a quick return.

In both golf and investing, knowledge and experience reduces risk and increases the chance of success. Being a young investor, it is imperative that I carefully research potential investments. The ideal situation is

diversification, however, for my first stock, I would choose Wells Fargo. With its solid balance sheet and management team, I believe Wells Fargo is a secure income company which also provides growth potential. By investing in Wells Fargo, I am hopeful that my money will soar to the green while avoiding hazards along the way.

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