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.

Patterson Companies.

Pat McKeough recently replied to an Inner Circle member looking for an opinion on this distributer of dental and animal health products. It’s primed to benefit from two growing trends, says Pat, but it faces competition.

Q: Hello Pat & Team: What is your take on Patterson Companies (Nasdaq: PDCO)? Cheers.

A: PATTERSON COMPANIES (symbol PDCO on Nasdaq; www.pattersoncompanies.com) distributes products for the dental and animal health industries.

Patterson Dental provides a wide range of one-time and limited use dental products throughout North America. That also includes other equipment, software and services used by dentists and dental laboratories.

Patterson Animal Health is a leading distributor in the U.S. and U.K. of one-time and limited use veterinary supplies as well as equipment, software, diagnostic products, vaccines and pharmaceuticals.

The dental business generates 43% of Patterson’s overall revenue and has a 33% share of the North American dental market. The animal health business accounts for 57% of the company’s overall revenue. It has a 25% share of the U.S. companion animal (pet) health market and 40% of the U.K.’s.


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Patterson Companies acquired Animal Health International in June 2015 for $1.0 billion. The acquisition doubled its veterinary business. Animal Health International is a leading animal health distribution company in the U.S. It distributes products for more than 1,000 manufacturers focused on companion animal and production animals (equine, beef and dairy cattle, poultry and swine).

In the three months ended October 29, 2016, Patterson’s revenue rose 2.1%, to $1.42 billion from $1.39 billion a year earlier. Excluding currency changes, it rose 4.1%. Sales were flat in the dental area, but increased in the companion animal and production animal segments.

Excluding one-time items, earnings in the quarter were unchanged from $0.56 per share a year earlier. The company holds cash of $110.4 million, or $1.13 a share. Its long-term debt of $1.0 billion is a reasonable 23.8% of its market cap.

Growth Stocks: Distribution deal with Dentsply

Patterson Companies announced in November 2016 that it would end an exclusivity agreement with Dentsply Sirona (symbol XRAY on Nasdaq) to distribute the manufacturer’s entire product line to U.S. dental practices. The agreement will end in September 2017. As a result, Patterson will take a non-cash, one-time charge of $22 million, or $0.23 a share. Meanwhile, the distributor has entered into a new relationship with Heartland Dental, the largest dental service organization in the U.S. Heartland supports more than 1,100 dentists.

With this new contract, Patterson replaces dental supply giant Henry Schein (symbol HSIC on Nasdaq) as Heartland’s supplier. The deal significantly raises Patterson’s profile in the industry.

The U.S. dental products market is highly competitive. However, it’s increasing, especially as the North American population ages. As a segment of the animal health industry, the pet-products market is also expanding as pet ownership rises. In addition, global demand for meat continues to rise as the middle class increases. That expansion helps to drive demand for the production-animal supplies Patterson distributes. Overall, those trends should push demand for the company’s antibiotics and vaccines.

The stock trades at 17.8 times the $2.44 a share that Patterson Companies is forecast to earn this year. The shares yield 2.2%.

Inner Circle recommendation: Patterson Companies is okay to hold.

For our recent report on a Canadian growth stock in the tech field, read OpenText climbs despite risky strategy.

For our views on a key area of growth stocks, read Tech Stocks 101: Definitions for successful investing in technology.

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Growth Stocks Post Archives

Growth Stocks: Patterson Companies poised for growth

Growth Stocks: Patterson Companies poised for growth

Pat McKeough recently replied to an Inner Circle member looking for an opinion on this distributer of dental and animal health products. It’s primed to benefit from two growing trends, says Pat, but it faces competition.
Q: Hello Pat & Team: What is your take on… Read More

Investing in Commodity Stocks

Investing in Commodity Stocks

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Growth Stocks: OpenText climbs despite risky strategy

Pat McKeough recently replied to an Inner Circle member looking for an opinion on data software provider OpenText. The company continues to grow by acquisition, says Pat. That has both pros and cons.
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Investing in REITs

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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. 
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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.
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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.
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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