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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ENCANA CORP. $23 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 741.0 million; Market cap: $17.0 billion; Price-to-sales ratio: 2.6; Dividend yield: 1.2%; TSINetwork Rating: Average; www.encana.com) focuses on six core properties: Montney (B.C.), Duvernay (Alberta), DJ Basin (Colorado), San Juan Basin (New Mexico); Tuscaloosa Marine Shale (Louisiana) and Eagle Ford (Texas).
These areas contain large amounts of oil and natural gas liquids, such as butane and propane. That cuts Encana’s exposure to weak natural gas prices. The company recently set up PriarieSky Royalty Ltd. (Toronto symbol PSK) as a new firm to hold its Clearwater properties in southern Alberta. PriarieSky doesn’t drill wells or explore for new reserves. Instead, it collects royalties from other oil and gas producers.
Encana sold 46% of PrairieSky to the public for $1.5 billion. In the future, it could hand out its remaining 54% stake to its investors as a special dividend.
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These areas contain large amounts of oil and natural gas liquids, such as butane and propane. That cuts Encana’s exposure to weak natural gas prices. The company recently set up PriarieSky Royalty Ltd. (Toronto symbol PSK) as a new firm to hold its Clearwater properties in southern Alberta. PriarieSky doesn’t drill wells or explore for new reserves. Instead, it collects royalties from other oil and gas producers.
Encana sold 46% of PrairieSky to the public for $1.5 billion. In the future, it could hand out its remaining 54% stake to its investors as a special dividend.
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APACHE CORP. $102 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 382.5 million; Market cap: $39.0 billion; Price-to-sales ratio: 2.7; Dividend yield: 1.0%; TSINetwork Rating: Average; www.apachecorp.com) plans to sell its 13% stake in Chevron’s Wheatstone LNG project in Australia, as well as its 50% interest in a proposed LNG export terminal in Kitimat, B.C.; Chevron owns the remaining 50%.
These moves are partly due to pressure from activist investment firm Jana Partners, which owns about 1.0% of the company. Jana feels selling these assets would give Apache $3 billion to $4 billion that it can use to buy back shares. It could also use the cash to expand its U.S. oil and gas operations.
The company has already sold $10 billion of less important assets in the past 18 months as part of its plan to focus on its less risky North American onshore operations.
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These moves are partly due to pressure from activist investment firm Jana Partners, which owns about 1.0% of the company. Jana feels selling these assets would give Apache $3 billion to $4 billion that it can use to buy back shares. It could also use the cash to expand its U.S. oil and gas operations.
The company has already sold $10 billion of less important assets in the past 18 months as part of its plan to focus on its less risky North American onshore operations.
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CHEVRON CORP. $129 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.9 billion; Market cap: $245.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.chevron.com) is the second-largest integrated oil company in the U.S. by revenue, after ExxonMobil (New York symbol XOM).
In the second quarter of 2014, Chevron produced 2.55 million barrels a day (67% oil, 33% natural gas), down 1.4% from 2.58 million barrels a year earlier. Even so, earnings rose 5.6%, to $5.7 billion from $5.4 billion. Chevron spent $1.25 billion on share buybacks in the latest quarter, so its earnings per share rose at a faster rate of 7.6%, to $2.98 from $2.77.
Cash flow per share, which excludes gains on sales of less important properties, rose 3.6%, to $8.96 from $8.65. Revenue gained 1.0%, to $57.9 billion from $57.4 billion.
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In the second quarter of 2014, Chevron produced 2.55 million barrels a day (67% oil, 33% natural gas), down 1.4% from 2.58 million barrels a year earlier. Even so, earnings rose 5.6%, to $5.7 billion from $5.4 billion. Chevron spent $1.25 billion on share buybacks in the latest quarter, so its earnings per share rose at a faster rate of 7.6%, to $2.98 from $2.77.
Cash flow per share, which excludes gains on sales of less important properties, rose 3.6%, to $8.96 from $8.65. Revenue gained 1.0%, to $57.9 billion from $57.4 billion.
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TIM HORTONS INC. $80 (New York symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 132.8 million; Market cap: $10.6 billion; Price-to-sales ratio: 3.8; Dividend yield: 1.5%; TSINetwork Rating: Average; www.timhortons.com) became a wholly owned subsidiary of the Wendy’s hamburger chain in 1995. Under pressure from activist investors, Wendy’s spun off Tims as a separate company in 2006.
The stock is up 183% since the spinoff, partly because Tims has just accepted a friendly takeover offer from Miami-based Burger King Worldwide Inc. (New York symbol BKW).
Tims shareholders can opt to take $88.50 (Canadian) a share in cash, or 3.0879 shares of Burger King (worth $93.72 U.S.). However, Burger King plans to limit the overall cash payout, so most Tims investors will get $65.50 (Canadian) in cash plus 0.8025 of a share (for a total of $84.69 U.S.).
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The stock is up 183% since the spinoff, partly because Tims has just accepted a friendly takeover offer from Miami-based Burger King Worldwide Inc. (New York symbol BKW).
Tims shareholders can opt to take $88.50 (Canadian) a share in cash, or 3.0879 shares of Burger King (worth $93.72 U.S.). However, Burger King plans to limit the overall cash payout, so most Tims investors will get $65.50 (Canadian) in cash plus 0.8025 of a share (for a total of $84.69 U.S.).
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AT&T INC. $35 (New York symbol T; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 5.2 billion; Market cap: $182.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 5.3%; TSINetwork Rating: Average; www.att.com) is the largest wireless service provider in the U.S., with 116.6 million subscribers. This business supplies 55% of the company’s revenue and 75% of its earnings.
The remaining 45% of revenue and 25% of earnings comes from its wireline division, which sells phone services, television packages and high-speed Internet access to 35.9 million customers. AT&T’s overall revenue rose 4.7%, from $123.0 billion in 2009 to $128.8 billion in 2013.
Earnings gained 8.6%, from $12.5 billion in 2009 to $13.6 billion in 2010. Earnings per share rose at a slower pace of 8.0%, from $2.12 to $2.29, on more shares outstanding.
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The remaining 45% of revenue and 25% of earnings comes from its wireline division, which sells phone services, television packages and high-speed Internet access to 35.9 million customers. AT&T’s overall revenue rose 4.7%, from $123.0 billion in 2009 to $128.8 billion in 2013.
Earnings gained 8.6%, from $12.5 billion in 2009 to $13.6 billion in 2010. Earnings per share rose at a slower pace of 8.0%, from $2.12 to $2.29, on more shares outstanding.
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Every Thursday we bring you “Best U.S. Stocks.”. You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about, from coverage in our newsletter on U.S. investing, Wall Street Stock Forecaster. IBM has a long history of drifting in and out of investor favour, mainly due to fear that new technologies will put it out of business. However, IBM also has long history of successfully shifting out of slowing businesses into faster-growing fields. For example, as computer prices fell in the 1990s, IBM expanded its more-profitable software and consulting operations. Later it unloaded its struggling personal computer operations, and now it’s selling its low-end server business. It will invest the proceeds in areas such as cloud computing and analytics software....
Every Monday we now feature “A Stock to Sell” as our daily post. With each sell, we give you a full explanation of why we advise against investing in these stocks. This is part of our new approach offering you buy, hold and sell advice in our daily posts. You also get “Best Canadian Stocks” on Tuesday, “Our Top U.S. Stocks” on Thursday, and every Friday, our advice on one of the stocks that members of Pat’s Inner Circle have asked about in their weekly Question & Answer sessions. Eguana Technologies (symbol EGT on Toronto; www.eguanatech.com), formerly called Sustainable Energy Technologies Ltd., makes products that convert the high-current/low-voltage (DC) electricity from solar cells into high-voltage alternating current (AC) power, which is used by power grids and most industrial and consumer electronics....
TEMPUR SEALY $58.64 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempursealy.com; Shares outstanding: 60.8 million; Market cap: $3.6 billion; No dividends paid) completed its $1.3-billion purchase of rival Sealy in March 2013. This was a major acquisition for Tempur Sealy (formerly Tempur-Pedic), but it has let the company diversify into traditional spring-coil beds.
The purchase is also helping Tempur Sealy offset rising competition in its current business; the company makes and distributes mattresses and neck pillows made of its Tempur material, which conforms to the body to provide support and alleviate pressure points.
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The purchase is also helping Tempur Sealy offset rising competition in its current business; the company makes and distributes mattresses and neck pillows made of its Tempur material, which conforms to the body to provide support and alleviate pressure points.
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ATLANTIC TELE-NETWORK $58.24 (Nasdaq symbol ATNI; TSINetwork Rating: Speculative) (340-777-8000; www.atni.com; Shares outstanding: 15.9 million; Market cap: $929.5 million; Yield: 1.8%) closed the sale of its Alltel wireless business to AT&T (symbol T on New York) late last year. As a result, it now holds cash of $407.6 million, or $24.64 a share, and has paid off its $271.1 million of debt.
The company bought Alltel from Verizon Wireless for just $223 million in April 2010.
Atlantic now has wireless and wireline telecom operations in the U.S. Southwest, New England, New York State, Guyana, Bermuda and parts of the Caribbean islands.
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The company bought Alltel from Verizon Wireless for just $223 million in April 2010.
Atlantic now has wireless and wireline telecom operations in the U.S. Southwest, New England, New York State, Guyana, Bermuda and parts of the Caribbean islands.
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IMPERIAL METALS $9.07 (Toronto symbol III; TSINetwork Rating: Speculative) (604-669-8959; www.imperialmetals.com; Shares outstanding: 74.9 million; Market cap: $715.9 million; No dividends paid) is down almost 42% since a dam broke at a tailings pond at its Mount Polley mine in B.C. The breach spilled wastewater and fine sand into nearby waterways.
The extent of the damage to local lakes and rivers is unknown at this point, but estimates of the total liability for the cleanup are in the range of $225 million. Imperial has just issued $100 million in convertible debentures to help pay these costs.
Meanwhile, Mount Polley will likely be shut down for at least one to two years, perhaps indefinitely. The mine is the company’s biggest producing asset and the main contributor to its cash flow. Imperial will now likely report cash flow of $0.40 a share in 2014, down from an estimated $1.05.
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The extent of the damage to local lakes and rivers is unknown at this point, but estimates of the total liability for the cleanup are in the range of $225 million. Imperial has just issued $100 million in convertible debentures to help pay these costs.
Meanwhile, Mount Polley will likely be shut down for at least one to two years, perhaps indefinitely. The mine is the company’s biggest producing asset and the main contributor to its cash flow. Imperial will now likely report cash flow of $0.40 a share in 2014, down from an estimated $1.05.
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