Growth Stocks
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:
- Invest mainly in well-established companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
- Downplay or avoid stocks in the broker/media limelight.
Make better stock picks when you read this FREE Special Report, Canadian Growth Stocks: WestJet Stock, RioCan Stock and More.
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GOODYEAR TIRE & RUBBER CO. $25.57 (Nasdaq symbol GT; TSINetwork Rating: Extra Risk) (330-796-2122; www.goodyear.com; Shares outstanding: 274.6 million; Market cap: $6.8 billion; Dividend yield: 0.9%) expects to report lowerthan- expected profits in its soon-to-bereleased 2014 fourth-quarter results.
The company now expects fourth-quarter operating income growth to be below the 10% to 15% it originally forecast in October 2014. That’s because weak European sales and a decline in foreign currencies against the U.S. dollar are hurting the value of its international sales. Warmer-than-expected weather also hurt demand for winter tires.
However, Goodyear reaffirmed its 2015 targets and expects operating income growth of 10% to 15% to resume this year. The stock trades at just 8.1 times the company’s forecast 2015 earnings of $3.15 a share.
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The company now expects fourth-quarter operating income growth to be below the 10% to 15% it originally forecast in October 2014. That’s because weak European sales and a decline in foreign currencies against the U.S. dollar are hurting the value of its international sales. Warmer-than-expected weather also hurt demand for winter tires.
However, Goodyear reaffirmed its 2015 targets and expects operating income growth of 10% to 15% to resume this year. The stock trades at just 8.1 times the company’s forecast 2015 earnings of $3.15 a share.
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CALIAN TECHNOLOGIES $18.47 (Toronto symbol CTY; TSINetwork Rating: Speculative) (613- 599-8600; www.calian.com; Shares outstanding: 7.4 million; Market cap: $135.8 million; Dividend yield: 6.1%) operates in two areas: the business and technology services division (which supplies 70% of the company’s revenue) provides engineers, health care workers and other skilled professionals on a contract basis. The systems engineering division (30% of revenue) sells hardware and software for testing, operating and managing satellite and other communication systems.
In the three months ended September 30, 2014, the company earned $2.8 million, or $0.38 a share. That’s down 6.7% from $3.0 million, or $0.41, a year earlier. Revenue declined 5.4% in the latest quarter, to $54.4 million from $57.5 million.
The business and technology services division continues to benefit from recurring orders from Canadian federal government departments, including the Department of National Defence. This division’s revenue rose 5.4%.
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In the three months ended September 30, 2014, the company earned $2.8 million, or $0.38 a share. That’s down 6.7% from $3.0 million, or $0.41, a year earlier. Revenue declined 5.4% in the latest quarter, to $54.4 million from $57.5 million.
The business and technology services division continues to benefit from recurring orders from Canadian federal government departments, including the Department of National Defence. This division’s revenue rose 5.4%.
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SASOL LTD. (ADR) $34.47 (New York symbol SSL; TSINetwork Rating: Extra Risk)(082- 883-9697; www.sasol.com; ADRs outstanding: 650.8 million; Market cap: $22.5 billion; Dividend yield: 7.1%) has announced that it will proceed with building an $8.1-billion facility in Lake Charles, Louisiana that will convert natural gas into plastics and other products. The project, which will triple Sasol’s U.S. chemical production, will start up in 2018.
Major developments like this can add a lot of risk. But the plant will take advantage of cheap and abundant U.S. shale gas, as well as ethane-shipping infrastructure that’s already in place on the U.S. Gulf Coast.
Expanding in the U.S. will also help Sasol offset some of the political and currency risks of operating mainly in South Africa.
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Major developments like this can add a lot of risk. But the plant will take advantage of cheap and abundant U.S. shale gas, as well as ethane-shipping infrastructure that’s already in place on the U.S. Gulf Coast.
Expanding in the U.S. will also help Sasol offset some of the political and currency risks of operating mainly in South Africa.
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CIMAREX ENERGY $102.82 (New York symbol XEC; TSINetwork Rating: Extra Risk) (303-295-3995; www.cimarex.com; Shares outstanding: 87.2 million; Market cap: $8.6 billion; Dividend yield: 0.6%) produces and explores for natural gas and oil. Gas makes up 50% of the company’s output.
Cimarex’s properties are mostly in the Wolfcamp shale area of the Permian Basin in Texas and New Mexico, as well as the Cana-Woodford shale region in western Oklahoma.
In the three months ended September 30, 2014, Cimarex’s production averaged 942.4 million cubic feet of natural gas equivalent a day, up 31.5% from 716.8 million cubic feet a year earlier.
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Cimarex’s properties are mostly in the Wolfcamp shale area of the Permian Basin in Texas and New Mexico, as well as the Cana-Woodford shale region in western Oklahoma.
In the three months ended September 30, 2014, Cimarex’s production averaged 942.4 million cubic feet of natural gas equivalent a day, up 31.5% from 716.8 million cubic feet a year earlier.
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ATLANTIC TELE-NETWORK $65.04 (Nasdaq symbol ATNI; TSINetwork Rating: Speculative) (340-777-8000; www.atni.com; Shares outstanding: 15.9 million; Market cap: $1.0 billion; Dividend yield: 1.8%) is entering the solar energy market by acquiring 28 solar projects in Massachusetts, California and New Jersey for $103 million.
Atlantic will now operate the assets, which have 45.7 megawatts of capacity, through its newly created Ahana Renewable subsidiary. The projects’ power-purchase agreements range from 10 to 25 years.
Before the purchase, Atlantic held cash of $395.6 million, or $24.87 a share, so it can easily afford this acquisition.
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Atlantic will now operate the assets, which have 45.7 megawatts of capacity, through its newly created Ahana Renewable subsidiary. The projects’ power-purchase agreements range from 10 to 25 years.
Before the purchase, Atlantic held cash of $395.6 million, or $24.87 a share, so it can easily afford this acquisition.
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FAIR ISAAC CORP. $78.02 (New York symbol FICO; TSINetwork Rating: Average)(415-472-2211; www.fairisaac.com; Shares outstanding: 32.1 million; Market cap: $2.4 billion; Dividend yield: 0.1%) makes FICO Scores, the program that dominates the market for software that businesses use to evaluate customer creditworthiness. The company is also profiting by selling programs that help credit card issuers control fraud and analyze cardholders’ spending patterns.
In its fiscal 2014 fourth quarter, which ended September 30, 2014, Fair Isaac’s earnings per share rose 39.2%, to $1.10 from $0.79 a year ago.
Revenue gained 16.4%, to $221.6 million from $190.3 million. The company saw stronger sales at its main applications division (66% of the total) on increased licensing revenue from software that detects bank fraud.
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In its fiscal 2014 fourth quarter, which ended September 30, 2014, Fair Isaac’s earnings per share rose 39.2%, to $1.10 from $0.79 a year ago.
Revenue gained 16.4%, to $221.6 million from $190.3 million. The company saw stronger sales at its main applications division (66% of the total) on increased licensing revenue from software that detects bank fraud.
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BROADRIDGE FINANCIAL SOLUTIONS $46.55 (New York symbol BR; TSINetwork Rating: Extra Risk) (201-714-3000; www.broadridge.com; Shares outstanding: 120.0 million; Market cap: $5.6 billion; Dividend yield: 2.3%) serves the investment industry in three main areas: investor communications, securities processing and transaction clearing. The company processes 90% of all proxy votes in the U.S. and Canada.
Without one-time items, Broadridge earned $37.0 million, or $0.30 a share, in its fiscal 2015 first quarter, which ended September 30, 2014. That’s down 22.9% from $48.0 million, or $0.39 a share, a year earlier. The company paid employees higher commissions on new sales and performance bonuses. It also expanded its sales and marketing capabilities.
Broadridge typically makes about half of its profits in its fiscal fourth-quarter ended June 30. That’s the busiest period for processing proxies and annual reports for its clients.
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Without one-time items, Broadridge earned $37.0 million, or $0.30 a share, in its fiscal 2015 first quarter, which ended September 30, 2014. That’s down 22.9% from $48.0 million, or $0.39 a share, a year earlier. The company paid employees higher commissions on new sales and performance bonuses. It also expanded its sales and marketing capabilities.
Broadridge typically makes about half of its profits in its fiscal fourth-quarter ended June 30. That’s the busiest period for processing proxies and annual reports for its clients.
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ALIMENTATION COUCHETARD $44.55 (Toronto symbol ATD.B; TSINetwork Rating: Extra Risk) (1-800-361-2612; www.couchetard. com; Shares outstanding: 565.8 million; Market cap: $25.4 billion; Dividend yield: 0.4%) is buying The Pantry (symbol PTRY on Nasdaq), which operates more than 1,500 convenience stores in 13 southern U.S. states.
Couche-Tard will pay $1.7 billion—$ 860 million in cash and the assumption of $840 million of debt. This is its biggest purchase since it paid $2.7 billion U.S. for Norway’s Statoil Fuel & Retail gas station chain in June 2012.
Founded in 1967, The Pantry mainly grew through acquisitions beginning in the late 1980s. Like Couche-Tard, it focuses on selling higher-margin fresh food. It sells its own private-label bottled water and is the fifth-largest location for Subway restaurants.
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Couche-Tard will pay $1.7 billion—$ 860 million in cash and the assumption of $840 million of debt. This is its biggest purchase since it paid $2.7 billion U.S. for Norway’s Statoil Fuel & Retail gas station chain in June 2012.
Founded in 1967, The Pantry mainly grew through acquisitions beginning in the late 1980s. Like Couche-Tard, it focuses on selling higher-margin fresh food. It sells its own private-label bottled water and is the fifth-largest location for Subway restaurants.
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DOREL INDUSTRIES $39.05 (Toronto symbol DII.B; TSINetwork Rating: Extra Risk) (514-731-0000; www.dorel.com; Shares outstanding: 32.3 million; Market cap: $1.3 billion; Dividend yield: 3.5%) makes a range of items, including ready-to-assemble home and office furniture; juvenile products, such as car seats, strollers, high chairs, toddler beds and cribs; and recreational goods, mainly bicycles.
Dorel has grown quickly over the last 10 years, with revenue doubling from $1.2 billion in 2003 to $2.4 billion in 2013 (all figures except share price and market cap in U.S. dollars). This period included two big acquisitions: France’s Ampa Group for $240 million in 2003 and Dorel’s 2004 purchase of Pacific Cycle for $310 million.
In late 2013, Dorel acquired 70% of money-losing Caloi, a major Brazilian bike maker, for $73.0 million. It has now integrated Caloi’s production from its big plant in Manaus, Brazil into its distribution and sales network to the point that it’s now adding to Dorel’s profits.
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Dorel has grown quickly over the last 10 years, with revenue doubling from $1.2 billion in 2003 to $2.4 billion in 2013 (all figures except share price and market cap in U.S. dollars). This period included two big acquisitions: France’s Ampa Group for $240 million in 2003 and Dorel’s 2004 purchase of Pacific Cycle for $310 million.
In late 2013, Dorel acquired 70% of money-losing Caloi, a major Brazilian bike maker, for $73.0 million. It has now integrated Caloi’s production from its big plant in Manaus, Brazil into its distribution and sales network to the point that it’s now adding to Dorel’s profits.
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Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investment advice. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.
Today’s tip: “To get the maximum reward from rising stocks, it’s essential to pick stocks with clear growth prospects and not simply momentum stocks with uncertain futures.”
By definition, growth stocks are companies that have above-average growth prospects. They are firms whose earnings growth has been above the market average, and is likely to remain above average. It is often the case that they pay small dividends or none at all. Instead, they re-invest their cash flow in the business, to promote their growth.
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Today’s tip: “To get the maximum reward from rising stocks, it’s essential to pick stocks with clear growth prospects and not simply momentum stocks with uncertain futures.”
By definition, growth stocks are companies that have above-average growth prospects. They are firms whose earnings growth has been above the market average, and is likely to remain above average. It is often the case that they pay small dividends or none at all. Instead, they re-invest their cash flow in the business, to promote their growth.
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