Growth Stocks

Growth stocks are companies that are likely to have sales and earnings growth well above market average. Frequently they pay few, if any, dividends. Instead they typically reinvest any extra cash flow to promote further growth. Chosen wisely—according to Pat McKeough’s advice—high-quality growth-oriented stocks can be worthwhile additions to most well-diversified portfolios.

Although growth stock picks can be highly volatile, they can make good long-term investments. 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 within the market as a whole, and could keep growing for years or decades.

And keep in mind that we focus on growth stocks, which have a good long-term history and favourable prospects. We downplay momentum stocks that tend to attract many investors simply because they are moving faster than the market averages, but are liable to fall sharply when their momentum fades.

There’s room for growth stock investing in your portfolio, but make sure you follow our TSI Network three-part Successful Investor strategy for your overall portfolio:

1-Invest mainly in well-established companies;
2-Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
3-Downplay or avoid stocks in the broker/media limelight.

teradata-corp

This tech company enjoyed strong growth in the years following its spinoff from NCR Corp. (New York symbol NCR) in 2007. Its computers and software captured and analyzed large banks of data for businesses and its high research spending helped make it a leader in the field. Subsequently, competition from giants like IBM and Oracle slowed its progress. But with its productive research spending and a move to cloud-based subscriptions, Teradata aims to spur future growth with an even stronger client base.  

TERADATA CORP. (New York symbol TDC; www.teradata.com) makes computers and software to capture and store large amounts of data for individual businesses—its clients. The company then analyzes this information and identifies customer buying habits and other trends.

As part of a new strategic plan, Teradata sold its marketing-applications business in July 2016 for $90 million. That business sells software and services to help businesses improve the effectiveness of their advertising campaigns.


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Teradata now sells its products as cloud-based subscriptions, instead of one-time purchases of computers and software packages. The company aims to spur its earnings by targeting larger clients it can sell more of its advanced products to, instead of smaller firms that are switching to cheaper cloud-based analytics services.

In addition, the company recently paid an undisclosed sum for privately held StackIQ Inc. Based in San Diego, this firm makes server software to improve the speed and reliability of computer networks and cloud-based systems.

Growth stocks: Strong balance sheet will support new staff and research

Teradata is also hiring new staff and increasing its research spending. That spending equalled 15.2% of revenue in the second quarter of 2017. In the second quarter, Teradata reported that more customers than anticipated had purchased the company’s technology by subscription, although it still recorded a net loss in revenue from a year earlier.

The company’s strong balance sheet will support its investments in staff and research. As of June 30, 2017, it held cash of $1.085 billion, or $8.61 a share. Its long-term debt was just $555 million.

However, the extra costs will probably cut Teradata’s earnings from $2.56 a share in 2016 to a projected $1.25 in 2017. The stock trades at a somewhat high 25.2 times that estimate.

Recommendation in Wall Street Stock Forecaster: Teradata is a hold.

For our recent report on a U.S. growth stock that we rate as a buy, read Classic niche stock is well-equipped for long-term growth.

For our views on a questionable category of growths stocks, read Are new stock issues a good deal for investors, or a risky investment?

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