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.

Capital GainsMore and more, exchange-traded funds (ETFs) are finding their way into the portfolios of investors. That’s because, unlike many other financial innovations, they don’t load you up with heavy management fees, or tie you down with high redemption charges if you decide to get out of them. Regulatory changes in Canada, introduced starting in 2015, have also forced investment brokers and advisors to disclose the commissions they earn on mutual funds. That has helped to drive interest in ETFs, which are considered a low-cost alternative to mutual funds.

ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You’ll have to pay brokerage commissions to buy and sell ETFs. However, ETFs’ low management fees still give them a cost advantage over most conventional mutual funds.

As well, shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital-gains bills generated by the yearly distributions most conventional mutual funds pay out to unitholders.

Below are six ETFs that hold mostly blue-chip stocks. They're widely traded on Canadian and U.S. exchanges. Each ETF mirrors, or tracks, the performance of a major stock market index. That’s different from narrower indexes that focus on resources or themes such as solar power or biotech.Of course, you pay brokerage commissions to buy and sell these ETFs. But their low management fees give them a cost advantage over most mutual funds.

Below, we update our advice on all six ETFs—five buys and one we don’t recommend.

ISHARES S&P/TSX 60 INDEX ETF $22.80 (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good low-fee way to buy the top stocks on the TSX. Specifically, the units are made up of stocks that represent the S&P/TSX 60 Index—the 60 largest, most heavily traded stocks on the exchange.

The ETF began trading on September 28, 1999. Expenses are now just 0.18% of assets, and it yields 2.7%.

The S&P/TSX 60 Index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few we wouldn’t include.

The fund’s top holdings are Royal Bank, 9.0%; TD Bank, 8.2%; Bank of Nova Scotia, 6.1%; Suncor Energy, 4.8%; CN Railway, 4.6%; Bank of Montreal, 4.1%; BCE, 3.8%; Enbridge, 3.5%; TransCanada Corp., 3.5%; and Canadian Natural Resources, 3.2%.

iShares S&P/TSX 60 Index ETF is a buy.


The simple secret to success in ETFs

Here’s the secret to making the most of ETFs in your portfolio. Know the difference between the original, easy-to-understand ETFs and complex hybrids created for the greater profit of the investment industry. Pat McKeough explains it all in this new report and recommends 11 ETFs for a stronger portfolio.

 

Read this NEW free report >>

 


 ISHARES CANADIAN SELECT DIVIDEND INDEX ETF $24.82 (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highest-yield Canadian stocks. Its selections are based on dividend growth, yield and payout ratios. The weight of any one stock is limited to 10% of the ETF’s assets. The fund’s MER is 0.56%, and it yields 3.6%. This ETF began trading on September 28, 1999.

The MER for iShares Canadian Select Dividend is higher than the MER for iShares S&P/TSX 60 Index ETF; that's because it’s more actively managed. Most market indexes are set up so that the stocks in the index are those with the highest market capitalization and also the most widely traded. However, the iShares Canadian Select Dividend Index ETF focuses on the 30 stocks that it sees as having the highest dividend yields, but also the best propects for dividend growth and sustainability.

The fund’s top holdings are CIBC, 8.4%; Agrium, 7.7%; Bank of Montreal, 6.1%; Royal Bank, 5.9%; Bank of Nova Scotia, 5.1%; BCE, 4.6%; TransCanada Corp., 4.5%; National Bank, 4.0%; and Laurentian Bank of Canada, 3.9%.

iShares Canadian Select Dividend is a buy.

SPDR S&P 500 ETF $224.43 (New York symbol SPY; buy or sell through brokers; www.spdrs.com) holds the stocks in the S&P 500 Index; they consist of 500 major U.S. companies chosen based on their market cap, liquidity and industry group. The ETF began trading on January 22, 1993.

The highest-weighted stocks for the SPDR S&P 500 are: Apple, Microsoft, ExxonMobil, Johnson & Johnson, Berkshire Hathaway, JPMorgan Chase, Amazon.com, General Electric, Facebook and AT&T. The fund’s MER is just 0.11%, and it yields 2.4%.

SPDR S&P 500 ETF is a buy.

ISHARES MSCI CANADA INDEX FUND $26.15 (New York symbol EWC; buy or sell through brokers; ca.ishares.com) holds the stocks in the Morgan Stanley Capital International Canada Index.

The fund has a 0.49% MER and yields 1.6%. It began trading on March 12, 1996.

The ETF’s top holdings are: Royal Bank, 8.2%; TD Bank, 7.4%; Bank of Nova Scotia, 5.4%; Suncor Energy, 4.4%; CN Railway, 4.3%; Bank of Montreal, 3.8%; and TransCanada Corp., 3.1%.

If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index ETF (see page 4). You’ll pay about a third of the management fees.

We don’t recommend the iShares MSCI Canada Index Fund.

SPDR DOW JONES INDUSTRIAL AVERAGE ETF $197.94 (New York symbol DIA; buy or sell through brokers; www.spdrs.com) holds the 30 stocks that make up the Dow Jones Industrial Average.

The ETF began trading on January 14, 1998. The MER for the SPDR Dow Jones Industrial Average ETF is 0.17%; it yields 2.6%.

The fund’s top holdings are: Goldman Sachs, 3M Company, IBM, Home Depot, UnitedHealth Group, Boeing Company, Home Depot, McDonald's Corp., Travelers Cos., Chevron Corp. and Apple Inc.

SPDR Dow Jones ETF is a buy.

POWERSHARES QQQ ETF $118.48 (Nasdaq symbol QQQ; buy or sell through brokers; www. invescopowershares.com), formerly called Nasdaq 100 Trust Shares, holds stocks that represent the Nasdaq 100 Index. They include the exchange’s 100 largest stocks by market cap. This ETF first began trading on March 10, 1999.

The Nasdaq 100 Index contains shares of companies in a number of major industries, including telecommunications, computer hardware and software, retail/wholesale trade, and biotechnology. It does not contain financial firms.

The fund’s MER is about 0.20%. It yields 1.0%.

The ETF’s highest-weighted stocks are: Apple, Alphabet Inc., Microsoft, Amazon.com, Facebook, Intel Corp., Comcast Corp., Cisco Systems, Amgen Inc., Qualcomm, Texas Instruments, Broadcom, Nvidia Corp., Adobe Systems and PayPal Holdings.

PowerShares QQQ ETF is a buy for aggressive investors only

Note: This article was originally published in 2010 and was last updated on April 25, 2017.

Read More

Growth Stocks Post Archives

Six exchange-traded funds (ETFs) that track the major indexes

More and more, exchange-traded funds (ETFs) are finding their way into the portfolios of investors. That’s because, unlike many other financial innovations, they don’t load you up with heavy management fees, or tie you down with high redemption charges if you decide to get out of… Read More

Increased competition for SP Plus Corp.

Increased competition for SP Plus Corp.

Pat McKeough recently replied to an Inner Circle member looking for an opinion on the parking facilities manager. The company’s strong brand helps protect its stable revenue, says Pat. But SP faces increased competition.
Q: Pat: Can you give me your opinion of SP Plus, listed… Read More

Under Armour expands its retail business

Under Armour expands its retail business

Pat McKeough recently replied to an Inner Circle member looking for an opinion on the athletic footwear and apparel company. Its sales were up last year, but the stock’s high price is only one of several risks it faces, says Pat.
Q: Pat: What do you… Read More

Growth Stocks: Earnings fall for Evertz Technologies

Growth Stocks: Earnings fall for Evertz Technologies

Pat McKeough recently replied to a member of his Inner Circle looking for his take on this provider of video and audio systems. The company’s niche market and leading position enhance its appeal, but that could also challenge its future growth, says Pat.
Q: Hi Pat:… Read More

Growth Stocks: Gains ahead for Russel Metals

Growth Stocks: Gains ahead for Russel Metals

The metal distributor experienced an earnings turnaround in the latest quarter thanks to rising steel prices.
RUSSEL METALS (Toronto symbol RUS; www.russelmetals.com) is one of North America’s largest metal distributors. It serves over 28,000 clients at 51 locations in Canada and 12 in the U.S.
In the… Read More

Growth Stocks: Sales slide for Stella-Jones Inc.

Growth Stocks: Sales slide for Stella-Jones Inc.

Pat McKeough recently replied to a member of his Inner Circle asking for an opinion on the niche lumber specialist. The company’ s seen earnings and sales slip on weak demand, but the it also faces another significant risk, says Pat.
Q: Hello: This is… Read More

Growth Stocks: Pura Naturals suffers loss

Growth Stocks: Pura Naturals suffers loss

Pat McKeough recently replied to an Inner Circle member looking for an opinion on this producer of environmentally friendly cleaners. But the market cap for Pura Naturals may fail to reflect the challenges ahead, says Pat.
Q: Pat: A stock that is of interest to me… Read More

Growth Stocks: Liquor Stores N.A expands in the U.S.

Growth Stocks: Liquor Stores N.A expands in the U.S.

Pat McKeough recently replied to an Inner Circle member looking for an opinion on this Canadian alcohol retailer. Liquor Stores is now focused on expanding its U.S. presence, says Pat. But that strategy carries some risk.
Q: Good day, Pat: Could you give me your opinion of… Read More