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.

CAE Inc

The flight-simulator maker is ready to build on its improving sales with help from a key acquisition and a successful restructuring plan.

CAE INC. (Toronto symbol CAE; www.cae.com) is the world’s largest maker of flight simulators for commercial airlines and military clients. It also trains pilots.

The company has applied its simulator expertise to new areas. These include mannequins for teaching paramedics, nurses and medical students. This business now supplies 5% of CAE’s overall revenue.

The company’s revenue rose 38.0%, from $1.8 billion in 2012 to $2.5 billion in 2016 (fiscal years end March 31). That’s partly due to its $279.3 million purchase of Oxford Aviation Academy in 2012. It operates flight schools in the U.K., the U.S., Europe and Asia.


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CAE’s earnings rose from $0.70 a share (or a total of $182.0 million) in 2012 to $0.74 a share (or $194.3 million) in 2013. Earnings dipped to $0.73 a share (or $191.1 million) in 2014, but rebounded to $0.76 a share (or $204.1 million) in 2015, and to $0.86 a share (or $230.5 million) in 2016.

In its fiscal 2017 second quarter, ended September 30, 2016, the company earned $48.3 million, or $0.18 a share. That’s down 35.9% from $75.3 million, or $0.28, a year earlier. Those year-earlier earnings benefitted from a $17.2 million tax recovery. If you disregard all unusual items, earnings per share in the quarter gained 22.2%, to $0.22 from $0.18. Overall revenue rose 3.0%, to $635.5 million from $616.8 million. CAE has now sold 26 flight simulators since the start of fiscal 2017. It sold a record 53 simulators in 2016.

The company ended the September quarter with a record backlog of $6.5 billion (51% civilian orders, 49% military). That’s equal to 2.6 times its annual revenue.

CAE recently completed its $25.7 million acquisition of the pilot-training operations of Lockheed Martin (New York symbol LMT). This business instructs pilots in flying a variety of commercial jet planes made by Boeing and Airbus. The new operations should add about $50 million to CAE’s annual revenue.

Growth Stocks: Long-term debt is 24% of market cap

The company is in a strong position to make more acquisitions. As of September 30, 2016, its long-term debt of $1.2 billion was a moderate 24% of its market cap. It also held cash of $343.3 million, or $1.28 a share.

CAE recently completed a restructuring plan, which involved cutting 4% of its workforce and making better use of its training facilities. The plan should add between $7 million and $10 million to its earnings for the second half of fiscal 2017. The company expects that savings to rise to around $20 million annually by 2018.

The restructuring should lift CAE’s earnings in 2017 to $0.98 a share. The stock trades at a reasonable 19.4 times that forecast. The $0.32 dividend yields 1.7%.

Recommendation in The Successful Investor: BUY

For our recent report on a Canadian growth stock we rate as a buy, read Leon’s earnings soar on sales, cost cuts.

For our views on making the right choices in growth stocks, read The ins and outs of cyclical stocks—and the best way to invest in them.

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Growth Stocks Post Archives

Growth Stocks: CAE ready to soar

Growth Stocks: CAE ready to soar

The flight-simulator maker is ready to build on its improving sales with help from a key acquisition and a successful restructuring plan.

CAE INC. (Toronto symbol CAE; www.cae.com) is the world’s largest maker of flight simulators for commercial airlines and… Read More

Growth Stocks: Cemex benefits from booming construction

Growth Stocks: Cemex benefits from booming construction

Pat McKeough recently replied to an Inner Circle member looking for an opinion on this leading cement producer. The stock has jumped on rising construction, says Pat. But it still faces challenges. 
Q: Hi Pat: Could you comment on Cemex please and let me know if… Read More

Growth Stocks: Visa technology spurs dividends

Growth Stocks: Visa technology spurs dividends

The world’s largest electronic payments network has announced plans to increase its dividend in 2017 as it focuses on new technology and services to fuel its growth.
VISA INC. (New York symbol V; www.visa.com) operates the world’s largest electronic payments network, through which it processes credit,… Read More

Growth Stocks: Texas Roadhouse beefs up profit

Growth Stocks: Texas Roadhouse beefs up profit

Pat McKeough recently replied to an Inner Circle member looking for an opinion on Texas Roadhouse. The chain of American steakhouses faces rising labour costs, but as Pat points out, that hasn’t held back profit or dividend growth.
Q: Hi Pat: I would appreciate your recommendation… Read More

Growth Stocks: Linamar gains with French acquisition

Growth Stocks: Linamar gains with French acquisition

A key acquisition has spurred a double-digit sales increase but also a double-digit-earnings jump for the auto parts maker.
LINAMAR CORP. (Toronto symbol LNR; www.linamar.com) makes a variety of automotive parts, including cylinder heads, cylinder blocks, camshafts, crankshafts and connecting rods. The company also makes… Read More

Campbell aims for healthier profits

CAMPBELL SOUP CO. $57 (New York symbol CPB; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 307.9 million; Market cap: $17.6 billion; Priceto- sales ratio: 2.2; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.campbellsoupcompany.com) is the world’s largest maker of canned soups. It also makes Prego… Read More

Growth Stocks: DH Corp. cuts dividend

Growth Stocks: DH Corp. cuts dividend

Earnings for this financial-services company missed the consensus estimate in the latest quarter as banks cut back on new technology spending.
DH CORP. (symbol DH on Toronto; www.dh.com) was primarily a printer of cheques until 2013. Then, in light of falling demand for paper cheques, it… Read More

Growth Stocks: Earnings soar for Spin Master

Growth Stocks: Earnings soar for Spin Master

By Pat McKeough
Pat McKeough recently replied to an Inner Circle member looking for an opinion on Spin Master. The Canadian toy maker saw its sales and earnings soar in the latest quarter, says Pat. But the fickle nature of consumers may challenge growth in the… Read More

How growth investors can cut the overall risk of their portfolios

How growth investors can cut the overall risk of their portfolios

Growth investors should consider a combination of growth investments and value stocks for profitable portfolios
Investors who want to build profitable portfolios should consider growth stocks vs. value stocks—and then buy some of both.
Growth investors focus on trying to identify and buy rising stocks when they… Read More