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.
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YUM! BRANDS INC. $72 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 439.7 million; Market cap: $31.7 billion; Price-to-sales ratio: 2.4; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.yum.com) plans to open two restaurants in Dallas called Bahn Shop, which specialize in Vietnamese banh mi sandwiches. The company is also testing a new fast food outlet called Super Chix, which features chicken sandwiches.
If successful, new banners like these would help Yum offset slowing sales at its U.S. KFC and Pizza Hut restaurants. Yum also raised its quarterly dividend by 10.8%, to $0.41 a share from $0.37. The new annual rate of $1.64 yields 2.3%.
Yum Brands is a buy.
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If successful, new banners like these would help Yum offset slowing sales at its U.S. KFC and Pizza Hut restaurants. Yum also raised its quarterly dividend by 10.8%, to $0.41 a share from $0.37. The new annual rate of $1.64 yields 2.3%.
Yum Brands is a buy.
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CISCO SYSTEMS INC. $25 (Nasdaq symbol CSCO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.1 billion; Market cap: $127.5 billion; Price-to-sales ratio: 2.8; Dividend yield 3.0%; TSINetwork Rating: Average; www.cisco.com) is buying Metacloud, a privately held California firm whose software helps companies manage data they store on remote servers.
The company didn’t reveal the purchase price. However, earlier this year Cisco earmarked $1 billion for its Intercloud initiative, which aims to deliver cloud computing services through a network of outside companies instead of building its own system. Using partners makes it easier for Cisco to expand to other countries and comply with local laws about data privacy and other online issues.
Cisco is a buy.
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The company didn’t reveal the purchase price. However, earlier this year Cisco earmarked $1 billion for its Intercloud initiative, which aims to deliver cloud computing services through a network of outside companies instead of building its own system. Using partners makes it easier for Cisco to expand to other countries and comply with local laws about data privacy and other online issues.
Cisco is a buy.
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MTS SYSTEMS CORP. $69 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.1 million; Market cap: $1.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.7%; TSINetwork Rating: Average; www.mts.com) recently paid $16.7 million for Roehrig Engineering, which has developed an electromagnetic technology that tests shock absorbers and other industrial equipment more accurately than traditional methods. These products look like a nice fit with MTS’s existing automotive testing equipment.
In its fiscal 2014 third quarter, which ended June 28, 2014, MTS’s revenue rose 7.7%, to $145.5 million from $135.1 million a year earlier. Overall earnings improved 9.7%, to $12.7 million from $11.5 million a year earlier. Earnings per share gained 13.9%, to $0.82 from $0.72, on fewer shares outstanding. MTS spends 4% of its revenue on research.
The stock is up 129% in the past five years and now trades at 21.0 times MTS’s projected fiscal 2014 earnings of $3.28 a share. That’s high p/e ratio for a firm that serves the highly cyclical automotive and aerospace industries.
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In its fiscal 2014 third quarter, which ended June 28, 2014, MTS’s revenue rose 7.7%, to $145.5 million from $135.1 million a year earlier. Overall earnings improved 9.7%, to $12.7 million from $11.5 million a year earlier. Earnings per share gained 13.9%, to $0.82 from $0.72, on fewer shares outstanding. MTS spends 4% of its revenue on research.
The stock is up 129% in the past five years and now trades at 21.0 times MTS’s projected fiscal 2014 earnings of $3.28 a share. That’s high p/e ratio for a firm that serves the highly cyclical automotive and aerospace industries.
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TENNANT CO. $68 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.4 million; Market cap: $1.3 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.2%; TSINetwork Rating: Average; www.tennantco.com) makes industrial floor-cleaning equipment, including scrubbers, sweepers and polishers. It also manufactures cleaning gear for garages, stadiums, parking lots and city streets.
In 2008, the company started selling equipment featuring its ec-H20 technology, which uses electricity to turn tap water into a chemical-free cleaning solution. This helps cut the machine’s operating costs.
Strong demand for this equipment increased the company’s sales by 9.4% in the three months ended June 30, 2014, to a record $219.1 million from $200.2 million a year earlier. Sales of ec- H2O gear rose 7.6% and account for about 20% of Tennant’s overall revenue.
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In 2008, the company started selling equipment featuring its ec-H20 technology, which uses electricity to turn tap water into a chemical-free cleaning solution. This helps cut the machine’s operating costs.
Strong demand for this equipment increased the company’s sales by 9.4% in the three months ended June 30, 2014, to a record $219.1 million from $200.2 million a year earlier. Sales of ec- H2O gear rose 7.6% and account for about 20% of Tennant’s overall revenue.
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BOEING CO. $129 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 720.6 million; Market cap: $93.0 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.boeing.com) has won a contract from the U.S. National Aeronautics and Space Administration (NASA) to develop a new vehicle that will carry astronauts to and from the International Space Station.
Boeing will build three of its Crew Space Transportation (CST-100) crew capsules at the Kennedy Space Center in Florida. The contract is worth $4.2 billion, which is equal to 5% of the company’s annual revenue of $88.4 billion.
NASA, which retired its space shuttle fleet in 2011, plans to resume manned space flights in 2017.
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Boeing will build three of its Crew Space Transportation (CST-100) crew capsules at the Kennedy Space Center in Florida. The contract is worth $4.2 billion, which is equal to 5% of the company’s annual revenue of $88.4 billion.
NASA, which retired its space shuttle fleet in 2011, plans to resume manned space flights in 2017.
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FEDEX CORP. $159 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 283.2 million; Market cap: $45.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 0.5%; TSINetwork Rating: Average; www.fedex.com) continues to benefit from a recent cost-control plan and the rise of online shopping, which has boosted demand for its package-delivery services.
In the first quarter of its 2015 fiscal year, which ended August 31, 2014, FedEx’s revenue rose 6.0%, to $11.7 billion from $11.0 billion a year earlier. Earnings gained 23.9%, to $606 million from $489 million. FedEx is an aggressive buyer of its own stock. As a result, its earnings per share jumped 37.3%, to $2.10 from $1.53.
The company expects to earn $8.50 to $9.00 a share for all of fiscal 2015, and the stock trades at 18.2 times the midpoint of that range. That’s an attractive multiple, particularly as FedEx is raising its shipping rates in January 2015.
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In the first quarter of its 2015 fiscal year, which ended August 31, 2014, FedEx’s revenue rose 6.0%, to $11.7 billion from $11.0 billion a year earlier. Earnings gained 23.9%, to $606 million from $489 million. FedEx is an aggressive buyer of its own stock. As a result, its earnings per share jumped 37.3%, to $2.10 from $1.53.
The company expects to earn $8.50 to $9.00 a share for all of fiscal 2015, and the stock trades at 18.2 times the midpoint of that range. That’s an attractive multiple, particularly as FedEx is raising its shipping rates in January 2015.
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NORDSTROM INC. $69 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 192.6 million; Market cap: $13.3 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.9%; TSINetwork Rating: Average; www.nordstrom.com) mainly sells upscale clothing, accessories and footwear. The company owns and operates 276 stores in 36 states. In September 2014, it opened its first Canadian location, in Calgary.
Nordstrom recently paid $350 million in stock for Trunk Club, which sells men’s clothing over the Internet. Trunk Club sends its members a selection of clothes based on their sizes and preferences. Members keep only the items they want and ship the rest back.
The company will operate Trunk Club as a separate business. However, this firm’s expertise should help Nordstrom improve its existing online operations.
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Nordstrom recently paid $350 million in stock for Trunk Club, which sells men’s clothing over the Internet. Trunk Club sends its members a selection of clothes based on their sizes and preferences. Members keep only the items they want and ship the rest back.
The company will operate Trunk Club as a separate business. However, this firm’s expertise should help Nordstrom improve its existing online operations.
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L BRANDS INC. $68 (New York symbol LB; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 292.4 million; Market cap: $19.9 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.0%; TSINetwork Rating: Average; www.lb.com) owns 1,113 Victoria’s Secret lingerie stores and 1,640 Bath & Body Works personal care products outlets. Smaller chains include 153 La Senza (lingerie) locations in Canada and 29 Henri Bendel (jewellery) stores in the U.S.
L Brands is removing some clothing and slowerselling items like cosmetics from its Victoria’s Secret online store. However, to clear the discontinued goods, L Brands has cut their prices. That could squeeze its profit margins in the next few months.
Meanwhile, the company earned $188.4 million in its fiscal 2015 second quarter, which ended August 2, 2014. That’s up 5.3% from $178.9 million a year earlier. Per-share earnings rose 3.3%, to $0.63 from $0.61, on more shares outstanding.
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L Brands is removing some clothing and slowerselling items like cosmetics from its Victoria’s Secret online store. However, to clear the discontinued goods, L Brands has cut their prices. That could squeeze its profit margins in the next few months.
Meanwhile, the company earned $188.4 million in its fiscal 2015 second quarter, which ended August 2, 2014. That’s up 5.3% from $178.9 million a year earlier. Per-share earnings rose 3.3%, to $0.63 from $0.61, on more shares outstanding.
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MACY’S INC. $60 (New York symbol M, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 353.1 million; Market cap: $21.2 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.1%; TSINetwork Rating: Average; www.macysinc.com) operates 840 Macy’s and Bloomingdale’s department stores in 45 states.
The company is benefiting from its strategy of tailoring its merchandise to local tastes. It’s also doing a good job of blending its online business with its stores.
For example, shoppers can now buy goods on the company’s website and pick them up at any Macy’s location. The company has also brought in new radio frequency identification tags that help it keep track of merchandise and avoid product shortages.
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The company is benefiting from its strategy of tailoring its merchandise to local tastes. It’s also doing a good job of blending its online business with its stores.
For example, shoppers can now buy goods on the company’s website and pick them up at any Macy’s location. The company has also brought in new radio frequency identification tags that help it keep track of merchandise and avoid product shortages.
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ADOBE SYSTEMS INC. $69 (Nasdaq symbol ADBE; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 497.4 million; Market cap: $34.3 billion; Price-to-sales ratio: 8.5; No dividends paid since June 2005; TSINetwork Rating: Average; www.adobe.com) earned $140.6 million in its fiscal 2014 third quarter, which ended August 29, 2014. That’s down 14.5% from $164.4 million a year earlier. Per-share earnings declined 12.5%, to $0.28 from $0.32, on fewer shares outstanding. Revenue rose 1.0%, to $1.01 billion from $995.1 million.
The company continues to shift away from selling software as a one-time purchase and toward a subscription model. It now gets 63% of its revenue from recurring subscriptions.
Adobe ended the latest quarter with 2.8 million subscribers to its Creative Cloud package of photo editing and desktop publishing programs, up 21.8% from a year earlier. Adobe Marketing Cloud, a package of software aimed at improving online marketing efforts and website performance, saw its revenue rise 13.8%.
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The company continues to shift away from selling software as a one-time purchase and toward a subscription model. It now gets 63% of its revenue from recurring subscriptions.
Adobe ended the latest quarter with 2.8 million subscribers to its Creative Cloud package of photo editing and desktop publishing programs, up 21.8% from a year earlier. Adobe Marketing Cloud, a package of software aimed at improving online marketing efforts and website performance, saw its revenue rise 13.8%.
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