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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PEPSICO INC. $87 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.5 billion; Market cap: $130.5 billion; Price-to-sales ratio: 2.0; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.pepsico.com) is the world’s second-largest soft drink maker after Coca-Cola. It also makes other products, such as Frito-Lay snack foods, Gatorade sports drinks, Tropicana fruit juices and Quaker Oats cereals.
Consumers are becoming increasingly concerned about the health effects of soft drinks, as well as potato chips and other snacks. The company continues to develop more nutritious alternatives in response.
For example, it owns the exclusive soft drink rights to a new type of sweetener called Sweetmyx, which lets food makers use less sugar in their products. At the same time, PepsiCo is cutting salt and fat from its foods.
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Consumers are becoming increasingly concerned about the health effects of soft drinks, as well as potato chips and other snacks. The company continues to develop more nutritious alternatives in response.
For example, it owns the exclusive soft drink rights to a new type of sweetener called Sweetmyx, which lets food makers use less sugar in their products. At the same time, PepsiCo is cutting salt and fat from its foods.
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NVIDIA CORP. $19 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 558.0 million; Market cap: $10.6 billion; Price-to-sales ratio: 2.6; Yield: 1.8%; TSINetwork Rating: Average; www.nvidia.com) earned $166.1 million in the quarter ended April 27, 2014. That’s up 45.9% from $113.8 million a year ago. Per-share earnings jumped 61.1%, to $0.29 from $0.18, on fewer shares outstanding.
Sales rose 15.5%, to $1.1 billion from $954.7 million, thanks to strong demand for Nvidia’s new high-end video chips. However, it faces strong competition from larger chip makers as it expands into new markets, like mobile devices and data centres.
Nvidia is a hold.
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Sales rose 15.5%, to $1.1 billion from $954.7 million, thanks to strong demand for Nvidia’s new high-end video chips. However, it faces strong competition from larger chip makers as it expands into new markets, like mobile devices and data centres.
Nvidia is a hold.
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ADOBE SYSTEMS INC. $65 (Nasdaq symbol ADBE; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 497.7 million; Market cap: $32.4 billion; Price-to-sales ratio: 8.3; No dividends paid since June 2005; TSINetwork Rating: Average; www.adobe.com) earned $151.3 million, or $0.30 a share, in its fiscal 2014 first quarter, which ended February 28, 2014. That’s down 14.9% from $177.9 million, or $0.35, a year ago. Revenue fell 0.8%, to $1.00 billion from $1.01 billion.
The declines are mainly because Adobe is now selling its Creative Cloud package of photo-editing and desktop-publishing programs as a subscription instead of a one-time purchase. That hurts the company’s short-term growth, but it should provide stable revenue streams as more users switch over. Subscriptions now supply over half of Adobe’s revenue.
The company spends 21% of its revenue on research, which hurts its earnings. That’s partly why the stock trades at a high 59.1 times the $1.10 a share that Adobe will likely earn in fiscal 2014. A high p/e increases the risk of a sudden price drop if its growth stalls. As well, Adobe mainly serves customers in cyclical businesses, like publishing.
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The declines are mainly because Adobe is now selling its Creative Cloud package of photo-editing and desktop-publishing programs as a subscription instead of a one-time purchase. That hurts the company’s short-term growth, but it should provide stable revenue streams as more users switch over. Subscriptions now supply over half of Adobe’s revenue.
The company spends 21% of its revenue on research, which hurts its earnings. That’s partly why the stock trades at a high 59.1 times the $1.10 a share that Adobe will likely earn in fiscal 2014. A high p/e increases the risk of a sudden price drop if its growth stalls. As well, Adobe mainly serves customers in cyclical businesses, like publishing.
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GOOGLE INC. $562 (Nasdaq symbol GOOG; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 674.5 million; Market cap: $379.1 billion; Price-to-sales ratio: 6.1; No dividends paid; TSINetwork Rating: Above Average; www.google.com) recently handed out its new class C non-voting shares to its class A (one vote per share) and class B (10 votes per share) shareholders. Investors received one class C share for each stock held, for an effective 2-for-1 split.
The new class C shares trade on Nasdaq under the GOOG symbol, while the class A shares ($570), now trade under the new GOOGL symbol.
If voting and non-voting shares trade for roughly the same price, you are better off buying the voting shares. That’s because the voting shares sometimes go on to trade at a premium, possibly due to buying by a shareholder who is only seeking to acquire a control position, or because institutions refuse to buy non-voters.
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The new class C shares trade on Nasdaq under the GOOG symbol, while the class A shares ($570), now trade under the new GOOGL symbol.
If voting and non-voting shares trade for roughly the same price, you are better off buying the voting shares. That’s because the voting shares sometimes go on to trade at a premium, possibly due to buying by a shareholder who is only seeking to acquire a control position, or because institutions refuse to buy non-voters.
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MICROSOFT CORP. $40 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.3 billion; Market cap: $332.0 billion; Price-to-sales ratio: 4.1; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.microsoft.com) is the world’s largest software company. It went into business in 1975 and grew rapidly over the next 25 years as its Windows operating system dominated the personal computer market. About 90% of the world’s computers now use the Windows operating system.
In the late 1980s, the company launched its Office suite of business programs, including a word processor (Word), spreadsheets (Excel) and slide presentations (PowerPoint). Office accounts for over 90% of this market.
Microsoft also controls about 75% of the market for software that runs corporate network servers. That helps support sales of Windows and Office, because businesses prefer to have their servers and employees’ computers running the same software. This compatibility makes it easier for users to upgrade their software and protect sensitive data.
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In the late 1980s, the company launched its Office suite of business programs, including a word processor (Word), spreadsheets (Excel) and slide presentations (PowerPoint). Office accounts for over 90% of this market.
Microsoft also controls about 75% of the market for software that runs corporate network servers. That helps support sales of Windows and Office, because businesses prefer to have their servers and employees’ computers running the same software. This compatibility makes it easier for users to upgrade their software and protect sensitive data.
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ENERFLEX LTD. $17.15 (Toronto symbol EFX; TSINetwork Rating: Extra Risk) (403-387-6377; www.enerflex.com; Shares outstanding: 78.3 million; Market cap:
$1.3 billion; Dividend yield: 1.8%) rents and sells equipment and services for natural gas production, including compression and processing plants, refrigeration equipment and power generators.
The company has a strong position in three expanding markets: U.S. and Canadian shale gas; Australian natural gas from coal beds; and conventional Middle Eastern natural gas, most of which gets converted to liquefied natural gas (LNG) for shipping worldwide.
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$1.3 billion; Dividend yield: 1.8%) rents and sells equipment and services for natural gas production, including compression and processing plants, refrigeration equipment and power generators.
The company has a strong position in three expanding markets: U.S. and Canadian shale gas; Australian natural gas from coal beds; and conventional Middle Eastern natural gas, most of which gets converted to liquefied natural gas (LNG) for shipping worldwide.
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TOROMONT INDUSTRIES LTD. $26.96 (Toronto symbol TIH; TSINetwork Rating: Extra Risk) (416-667-5511; www.toromont.com; Shares outstanding: 76.9 million; Market cap: $2.1 billion; Dividend yield: 2.2%) distributes a broad range of industrial equipment, including machinery made by Caterpillar Inc. It also makes refrigeration systems through its CIMCO division.
The company completed the spinoff of Enerflex Ltd. (see right) in July 2011. Shareholders received shares of both the new Toromont Industries and Enerflex.
In the three months ended March 31, 2014, Toromont’s revenue fell slightly, to $311.7 million from $313.1 million a year earlier.
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The company completed the spinoff of Enerflex Ltd. (see right) in July 2011. Shareholders received shares of both the new Toromont Industries and Enerflex.
In the three months ended March 31, 2014, Toromont’s revenue fell slightly, to $311.7 million from $313.1 million a year earlier.
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AEROPOSTALE $4.68 (New York symbol ARO; TSINetwork Rating: Extra Risk) (646-485-5410; www.aeropostale.com; Shares outstanding: 78.5 million; Market cap: $378.4 million; No dividends paid) is undertaking a number of major initiatives to increase its sales and profits.
These moves are in response to the slow U.S. economy, which has increased the unemployment rate among teenagers, hurting sales at teen retailers like Aeropostale.
In the three months ended February 1, 2014, Aeropostale’s sales fell 16.0%, to $670.0 million from $797.7 million a year earlier. Same-store sales declined 15%. It lost $70.3 million, or $0.90 a share, compared to loss of $671,000, or $0.01.
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These moves are in response to the slow U.S. economy, which has increased the unemployment rate among teenagers, hurting sales at teen retailers like Aeropostale.
In the three months ended February 1, 2014, Aeropostale’s sales fell 16.0%, to $670.0 million from $797.7 million a year earlier. Same-store sales declined 15%. It lost $70.3 million, or $0.90 a share, compared to loss of $671,000, or $0.01.
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ALIMENTATION COUCHE-TARD $29.82 (Toronto symbol ATD.B: TSINetwork Rating: Extra Risk) (1-800-361-2612; www.couche-tard.com; Shares outstanding: 538.2 million; Market cap: $17.1 billion; Dividend yield: 0.4%) has split its shares on a 3-for-1 basis.
When a company’s stock price goes up, it has an incentive to split the stock to make it seem cheaper to investors, who may then buy more. This can make the stock more liquid than if it refrained from splits and let its share price go to uncommonly high levels.
Alimentation Couche-Tard is a buy.
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When a company’s stock price goes up, it has an incentive to split the stock to make it seem cheaper to investors, who may then buy more. This can make the stock more liquid than if it refrained from splits and let its share price go to uncommonly high levels.
Alimentation Couche-Tard is a buy.
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SYMANTEC CORP. $21.41 (Nasdaq symbol SYMC; TSINetwork Rating: Average) (1-408-517-8000; www.symantec.com; Shares outstanding: 691.6 million; Market cap: $14.7 billion; Dividend yield: 2.8%) reports that its revenue fell 5.6% in its fiscal 2014 fourth quarter, which ended March 28, 2014, to $1.65 billion from $1.75 billion a year earlier.
However, earnings per share rose 6.8%, to $0.47 from $0.44, mainly due to savings from a new restructuring plan that includes job cuts and simplifying the company’s product lines.
Symantec now expects to earn $1.84 to $1.92 a share in fiscal 2015, which is higher than the consensus estimate of $1.83. The stock trades at just 11.4 times the midpoint of that range, mainly due to investor uncertainty after Symantec fired its CEO over the slow progress of its restructuring.
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However, earnings per share rose 6.8%, to $0.47 from $0.44, mainly due to savings from a new restructuring plan that includes job cuts and simplifying the company’s product lines.
Symantec now expects to earn $1.84 to $1.92 a share in fiscal 2015, which is higher than the consensus estimate of $1.83. The stock trades at just 11.4 times the midpoint of that range, mainly due to investor uncertainty after Symantec fired its CEO over the slow progress of its restructuring.
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