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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BAXTER INTERNATIONAL INC. $72 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 540.9 million; Market cap: $38.9 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.7%; TSINetwork Rating: Average; www.baxter.com) is the latest of our recommendations to announce a spinoff. (We analyze three other recent spinoffs in this issue.)
Baxter plans to split into two separate companies. One will focus on medical devices, such as intravenous pumps and kidney-dialysis equipment. This business provides 60% of Baxter’s total revenue. The other firm will make biopharmaceuticals, including vaccines and hemophilia drugs.
In mid-2015, Baxter will hand out shares in the biopharmaceutical company to its shareholders as a tax-deferred dividend.
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Baxter plans to split into two separate companies. One will focus on medical devices, such as intravenous pumps and kidney-dialysis equipment. This business provides 60% of Baxter’s total revenue. The other firm will make biopharmaceuticals, including vaccines and hemophilia drugs.
In mid-2015, Baxter will hand out shares in the biopharmaceutical company to its shareholders as a tax-deferred dividend.
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CHEVRON CORP. $125 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.9 billion; Market cap: $237.5 billion; Price-to-sales ratio: 1.1; Dividend yield: 3.2%; 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).
Chevron gets 90% of its earnings by producing oil (67% of total production) and natural gas (33%). The remaining 10% comes from its refineries, petrochemical operations and 8,050 gas stations in the U.S., which operate under the Chevron and Texaco banners. The company owns 400 of these locations and supplies fuel to an additional 8,600 stations outside the U.S.
At the end of 2013, Chevron’s proven reserves totaled 11.2 billion barrels of oil equivalent (57% oil and 43% natural gas). Based on its average 2013 production of 2.6 million barrels a day, that would last 11.8 years.
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Chevron gets 90% of its earnings by producing oil (67% of total production) and natural gas (33%). The remaining 10% comes from its refineries, petrochemical operations and 8,050 gas stations in the U.S., which operate under the Chevron and Texaco banners. The company owns 400 of these locations and supplies fuel to an additional 8,600 stations outside the U.S.
At the end of 2013, Chevron’s proven reserves totaled 11.2 billion barrels of oil equivalent (57% oil and 43% natural gas). Based on its average 2013 production of 2.6 million barrels a day, that would last 11.8 years.
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TEMPUR SEALY $47.64 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempursealy.com; Shares outstanding: 60.7 million; Market cap: $2.9 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.
Competitors Simmons Bedding and Serta have both successfully launched a range of memory-foam mattresses that directly compete with Tempur Sealy’s products.
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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.
Competitors Simmons Bedding and Serta have both successfully launched a range of memory-foam mattresses that directly compete with Tempur Sealy’s products.
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WYNDHAM WORLDWIDE $70.50 (New York symbol WYN; TSINetwork Rating: Extra Risk) (973-753-6000; www.wyndhamworldwide.com; Shares outstanding: 128.1 million; Market cap: $8.9 billion; Dividend yield: 2.0%) is one of the world’s largest hospitality companies, with 7,440 franchised hotels worldwide.
Wyndham also manages vacation resorts, rental properties, luxury clubs and time-shares. The company now has over 106,000 vacation-rental properties in 100 countries.
In the three months ended December 31, 2013, the hotel and resort operator’s revenue rose 9.2%, to $1.20 billion from $1.09 billion a year earlier. Wyndham gets most of its revenue from vacation rather than business travel, and vacation bookings rose in the latest quarter. That helped push up the company’s occupancy rate by 1.9%.
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Wyndham also manages vacation resorts, rental properties, luxury clubs and time-shares. The company now has over 106,000 vacation-rental properties in 100 countries.
In the three months ended December 31, 2013, the hotel and resort operator’s revenue rose 9.2%, to $1.20 billion from $1.09 billion a year earlier. Wyndham gets most of its revenue from vacation rather than business travel, and vacation bookings rose in the latest quarter. That helped push up the company’s occupancy rate by 1.9%.
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TIM HORTONS $61.19 (Toronto symbol THI; TSINetwork Rating: Average) (905-845-6511; www.timhortons.com; Shares outstanding: 138.2 million; Market cap: $8.3 billion; Dividend yield: 2.1%) continues to successfully launch new products that take advantage of consumer trends. The latest is its Tims Crispy Chicken Sandwich.
This sandwich sells for $4.99 and is made fresh with breaded, seasoned white meat, lettuce, tomato and light mayonnaise on a soft, bakery-style bun.
The new sandwich will also help the company compete with McDonald’s, which has targeted Tims by improving its coffee offerings.
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This sandwich sells for $4.99 and is made fresh with breaded, seasoned white meat, lettuce, tomato and light mayonnaise on a soft, bakery-style bun.
The new sandwich will also help the company compete with McDonald’s, which has targeted Tims by improving its coffee offerings.
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AMAZON.COM $316.08 (Nasdaq symbol AMZN; TSINetwork Rating: Extra Risk) (206-266-1000; www.amazon.com; Shares outstanding: 459.3 million; Market cap: $145.4 billion; No dividends paid) has just unveiled Fire TV, a $99 Internet video-streaming box that plugs into a high-definition TV set. It will compete against similar devices, like Apple TV, Roku and Google Chromecast.
The device, which is about the size of a CD case, runs Google’s Android operating system and offers Netflix, Hulu Plus, Crackle, Pandora, ESPN and other streaming channels.
Fire TV can also be used for gaming. Customers can play popular games, such as Minecraft, as well as thousands more titles to be released soon. Many games will be free, while paid games from Amazon will cost an average of $1.85. Amazon will offer a compatible game controller for $39.99.
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The device, which is about the size of a CD case, runs Google’s Android operating system and offers Netflix, Hulu Plus, Crackle, Pandora, ESPN and other streaming channels.
Fire TV can also be used for gaming. Customers can play popular games, such as Minecraft, as well as thousands more titles to be released soon. Many games will be free, while paid games from Amazon will cost an average of $1.85. Amazon will offer a compatible game controller for $39.99.
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WESTJET $25.59 (Toronto symbol WJA; TSINetwork Rating: Extra Risk) (1-877-493-7853; www.westjet.com; Shares outstanding: 129.4 million; Market cap: $3.3 billion; Dividend yield: 1.9%) carried 4.8 million passengers in March 2014, up 7.0% from 4.5 million a year earlier.
The company’s load factor fell to 84.0% from 86.1% in March 2013. (Load factor is the percentage of available seats that are occupied by paying passengers.) However, the decline was low considering that WestJet increased its capacity by 6.6% to meet higher demand.
Demand for its flights remains high, and the launch of its new Canadian regional airline, WestJet Encore, has gone well.
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The company’s load factor fell to 84.0% from 86.1% in March 2013. (Load factor is the percentage of available seats that are occupied by paying passengers.) However, the decline was low considering that WestJet increased its capacity by 6.6% to meet higher demand.
Demand for its flights remains high, and the launch of its new Canadian regional airline, WestJet Encore, has gone well.
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ACI WORLDWIDE $57.16 (Nasdaq symbol ACIW; TSINetwork Rating: Speculative) (402-334-5101; www.tsainc.com; Shares outstanding: 38.5 million; Market cap: $2.2 billion; No dividends paid) makes software for processing transactions involving credit cards, debit cards, automated teller machines, point-of-sale terminals and interbank payments. Its products also help cut fraud.
In the quarter ended December 31, 2013, ACI’s revenue rose 26.4%, to $283.2 million from $224.1 million a year earlier. That’s mainly due to the contribution from Online Resources Corp., which ACI bought for $126.6 million early last year. Earnings per share rose 3.2%, to $1.30 from $1.26.
ACI has made a number of recent acquisitions: in February 2012, it bought S1 Corp. for $540 million. S1 sells transaction software for banks, credit unions, retailers and other payment processors. It also recently bought Official Payments Holdings for $109 million. Official Payments processes about 20 million payments totalling over $9 billion annually.
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In the quarter ended December 31, 2013, ACI’s revenue rose 26.4%, to $283.2 million from $224.1 million a year earlier. That’s mainly due to the contribution from Online Resources Corp., which ACI bought for $126.6 million early last year. Earnings per share rose 3.2%, to $1.30 from $1.26.
ACI has made a number of recent acquisitions: in February 2012, it bought S1 Corp. for $540 million. S1 sells transaction software for banks, credit unions, retailers and other payment processors. It also recently bought Official Payments Holdings for $109 million. Official Payments processes about 20 million payments totalling over $9 billion annually.
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SYMANTEC CORP. $20.76 (Nasdaq symbol SYMC; TSINetwork Rating: Average) (1-408-517-8000; www.symantec.com; Shares outstanding: 691.6 million; Market cap: $14.3 billion; Dividend yield: 2.9%) sells computer-security technology, including anti-virus and email-filtering software, to businesses and consumers. It also offers data-archiving software.
In Symantec’s fiscal 2014 third quarter, which ended December 27, 2013, its earnings per share rose 13.3%, to $0.51 from $0.45 a year earlier. The gains were mainly due to savings from a new restructuring plan that includes laying off 30% to 40% of its managers and simplifying its product lines.
Revenue fell 4.8%, to $1.7 billion from $1.8 billion. That’s mainly because the company is retraining its sales staff as part of its restructuring, and that disrupted their closing of new deals. Slow computer sales have also hurt demand for anti-virus software.
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In Symantec’s fiscal 2014 third quarter, which ended December 27, 2013, its earnings per share rose 13.3%, to $0.51 from $0.45 a year earlier. The gains were mainly due to savings from a new restructuring plan that includes laying off 30% to 40% of its managers and simplifying its product lines.
Revenue fell 4.8%, to $1.7 billion from $1.8 billion. That’s mainly because the company is retraining its sales staff as part of its restructuring, and that disrupted their closing of new deals. Slow computer sales have also hurt demand for anti-virus software.
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ADOBE SYSTEMS $62.11 (Nasdaq symbol ADBE; TSINetwork Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 497.7 million; Market cap: $30.6 billion; No dividends paid) earned $0.30 a share in the three months ended February 28, 2014. That’s down 14.3% from $0.35 a year earlier. Revenue fell 0.8%, to $1.00 billion from $1.01 billion.
Results fell 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 its short-term growth, but the switch should provide more predictable revenue streams. Subscriptions now supply over half of Adobe’s revenue.
The stock now trades at 56.5 times the $1.10 a share that Adobe will likely earn in 2014. That’s a high p/e ratio for any company, but especially one that mainly serves customers in cyclical businesses like publishing.
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Results fell 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 its short-term growth, but the switch should provide more predictable revenue streams. Subscriptions now supply over half of Adobe’s revenue.
The stock now trades at 56.5 times the $1.10 a share that Adobe will likely earn in 2014. That’s a high p/e ratio for any company, but especially one that mainly serves customers in cyclical businesses like publishing.
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