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.

index investing

Discover the pros and cons of index investing with both mutual funds and exchange traded funds (ETFs)

Index investing has both advantages and disadvantages. However, is index investing really a good overall strategy for growth investors?

In this article we look at both mutual funds and ETFs for index investing consideration.


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Are mutual funds or ETFs worthy buys for index investing?

Index mutual funds are among the few good financial innovations to come along in the past few decades.

Index investing mutual funds do show better long-run performance than more than half of all actively managed mutual funds with long-term track records. That’s partly because index fund fees run around 1.0% of assets per year, compared to 2.5% or more on many broker-sold mutual funds.

One big advantage of index mutual funds is that they can help you avoid the risk of choosing a fund with a management style that virtually guarantees below-average long-term performance.

Index mutual funds can provide a low-cost way to invest in the stock market. However, for the best long term returns, we think you are better off to build a portfolio of well-established companies, spread out across most if not all of the five main economic sectors. Or, invest in mutual funds or ETFs that follow our approach.

If funds invest as we advise, sticking with well-established, mostly dividend-paying companies and spreading their assets out across most if not all of the five main economic sectors, they will tend to lose a lot less than the market indexes in periods when the indexes fall sharply. That’s because big market slides are particularly hard on the hottest, most popular stocks of the preceding market rise. Investing as we do leads you to avoid excessive investment in the hot stocks.

Index mutual funds or ETFs, in contrast, tend to load up on the hottest, most popular stocks as they rise. That’s because, as these stocks rise, they make up a rising proportion of the index. When the indexes go to extremes, so do the index funds. That occurs from time to time, especially in the Toronto market, with periodic resources exposure.

Index investing: Advantages of Canadian index funds

One big advantage of index funds is that they can help you avoid the risk of choosing a mutual fund with a management style that virtually guarantees below-average long-term performance.

For example, in our view, mutual funds that pursue a trading or sector-rotation approach belong in this sub-par category. These funds’ managers try to outperform the market by betting on relatively short-term trends. This can work in any one year, say. But in any one decade, the top funds are generally run by conservative managers who focus on long-term growth in the economy.

Another advantage of index funds is that they can give investors with limited funds a low-cost way to get some stock-market exposure. They can also be a good starting point for a registered education savings plan (RESP), or an in-trust account. Many investors also consider them when they invest funds in their tax-free savings accounts (TFSAs).

Reasons why investors like index investing through exchange traded funds (ETFs)

The MERs (Management Expense Ratios) are generally lower on ETFs than on conventional mutual funds. That’s because most ETFs take a much simpler approach to investing. Instead of actively managing clients’ investments, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.

ETFs practice this “passive” fund management, in contrast to the “active” management that conventional mutual funds provide at much higher costs. Traditional ETFs stick with this passive management—they follow the lead of the sponsor of the index (for example, Standard & Poors). Sponsors of stock indexes do from time to time change the stocks that make up the index, but generally only when the market weighting of stocks change. They don’t attempt to pick and choose which stocks they think have the best prospects.

This traditional, passive style also keeps turnover very low, and that in turn keeps trading costs for your ETF investment down.

Do you see growth opportunities through index investing or do you think that following an index is too limiting?

Read More

Growth Stocks Post Archives

Index investing can power your mutual funds and ETFs

Index investing can power your mutual funds and ETFs

Discover the pros and cons of index investing with both mutual funds and exchange traded funds (ETFs)
Index investing has both advantages and disadvantages. However, is index investing really a good overall strategy for growth investors?

In this article we look at both mutual funds and ETFs… Read More

BlueSky helps brighten the outlook for communications giant

BlueSky helps brighten the outlook for communications giant

In response to a request from an Inner Circle Member, Pat McKeough recently discussed one of Shaw Communications. In an industry in transition, Shaw made a major wireless acquisition in 2015 and has enhanced its Internet and television offerings, which has helped to keep revenues… Read More

Outlook brightens for OraSure Technologies

Outlook brightens for OraSure Technologies

Pat McKeough recently replied to an Inner Circle member seeking his opinion on the DNA-and medical-testing company. While OraSure faces increased competition, says Pat, its strong sales, new products and partnerships with industry leaders improve its prospects.

Q: Hi Pat: What are your thoughts on… Read More

Investing in cannabis stocks: What to watch out for

Investing in cannabis stocks: What to watch out for

What to consider before investing in cannabis stocks, and four cannabis stocks to watch.
The cannabis industry is experiencing many changes that are attracting a lot of investor interest in investing in cannabis stocks. However, it’s important to realize that these stocks are speculative stocks with… Read More

Growth Stocks: Profit fuels Dollarama expansion

Growth Stocks: Profit fuels Dollarama expansion

Dollarama has increased its target for new stores as bigger transactions push up its sales and earnings.
Q: Pat: What do you think of Dollarama? Thanks. 
A: DOLLARAMA INC. (symbol DOL on Toronto; www.dollarama.com) is Canada’s leading dollar-store operator, with 1,095 locations across the country.
Dollarama’s revenue rose… Read More

Growth Stocks: Johnson & Johnson plans for a growth spurt

Growth Stocks: Johnson & Johnson plans for a growth spurt

Both revenue and earnings continue to grow for this leading maker of prescription drugs and consumer products. But still, there are risks.
JOHNSON & JOHNSON (symbol JNJ on New York; www.jnj.com) operates through three major businesses:
Pharmaceutical (47% of revenue) makes anti-infective, antipsychotic, contraceptive, dermatological and gastrointestinal… Read More

Unilever cleans house with a major restructuring plan

Pat McKeough responds to many requests from members of his Inner Circle for advice on specific stocks, as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to… Read More

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

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