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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PHILIPS ELECTRONICS N.V. ADRs $34 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 913.3 million; Market cap: $31.1 billion; Priceto- sales ratio: 1.0; Dividend yield: 2.9%; TSINetwork Rating: Average; www.philips.com) has agreed to merge its LED (light emitting diode) lighting product business in Saudi Arabia with local firm General Lighting.
As part of the deal, Philips will also contribute $235 million, which is equal to 42% of the $566 million, or $0.59 per ADR, that it earned in the quarter ended December 31, 2013. In return, Philips will receive a 51% stake in the combined company.
Teaming up with a well-established local firm should help Philips take advantage of fast-growing demand for LED lighting, particularly as the Saudi government aims to cut its energy use.
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As part of the deal, Philips will also contribute $235 million, which is equal to 42% of the $566 million, or $0.59 per ADR, that it earned in the quarter ended December 31, 2013. In return, Philips will receive a 51% stake in the combined company.
Teaming up with a well-established local firm should help Philips take advantage of fast-growing demand for LED lighting, particularly as the Saudi government aims to cut its energy use.
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QUAKER CHEMICAL CORP. $75 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 13.2 million; Market cap: $990.0 million; Price-to-sales ratio: 1.4; Dividend yield: 1.3%; TSINetwork Rating: Average; www.quakerchem.com) makes lubricants and chemicals that keep mechanical parts from rusting.
Quaker needs oil to make its products, and rising crude prices have slowed its earnings growth. As well, it gets 60% of its sales from overseas, and the higher U.S. dollar has also weighed on its results.
The company has raised its prices and cut its costs in response. It has also acquired smaller, related firms, which has helped increase its sales and earnings.
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Quaker needs oil to make its products, and rising crude prices have slowed its earnings growth. As well, it gets 60% of its sales from overseas, and the higher U.S. dollar has also weighed on its results.
The company has raised its prices and cut its costs in response. It has also acquired smaller, related firms, which has helped increase its sales and earnings.
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BRIGGS & STRATTON CORP. $22 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 47.0 million; Market cap: $1.0 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.2%; TSINetwork Rating: Above Average; www.briggsandstratton.com) is the world’s largest maker of lawn mower engines. The company also makes a variety of other home and garden equipment, such as portable power generators, pressure washers and snow blowers.
In Briggs’s 2014 second quarter, which ended December 31, 2013, its sales fell 5.1%, to $416.6 million from $439.1 million a year earlier.
Sales of engines to manufacturers (61% of total sales) fell 3.1%, mainly because the year-earlier sales benefited from strong generator demand after Hurricane Sandy. A lack of major storms also caused sales of consumer products (39%) to decline 13.2%.
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In Briggs’s 2014 second quarter, which ended December 31, 2013, its sales fell 5.1%, to $416.6 million from $439.1 million a year earlier.
Sales of engines to manufacturers (61% of total sales) fell 3.1%, mainly because the year-earlier sales benefited from strong generator demand after Hurricane Sandy. A lack of major storms also caused sales of consumer products (39%) to decline 13.2%.
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MTS SYSTEMS CORP. $68 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.3 million; Market cap: $1.0 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.8%; TSINetwork Rating: Average; www.mts.com) makes equipment and software that manufacturers use to test the behaviour of materials, machines and structures. This helps its clients reduce errors and costs.
The company recently announced a new restructur-ing plan, including job cuts and technology investments. This initiative should make its testing division, which supplies 80% of its revenue, more productive. MTS gets the remaining 20% of its revenue by making sensors for industrial equipment.
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TENNANT CO. $63 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.5 million; Market cap: $1.2 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.1%; 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.
The company continues to benefit from strong demand for products featuring its ec-H20 technology, which uses electricity to make tap water act like a detergent.
In 2013, Tennant’s sales rose 1.8%, to $752.0 million from $739.0 million in 2012. Overseas markets supply a third of the company’s sales. If you disregard the negative impact of currency exchange rates, sales rose 2.8%.
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The company continues to benefit from strong demand for products featuring its ec-H20 technology, which uses electricity to make tap water act like a detergent.
In 2013, Tennant’s sales rose 1.8%, to $752.0 million from $739.0 million in 2012. Overseas markets supply a third of the company’s sales. If you disregard the negative impact of currency exchange rates, sales rose 2.8%.
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CISCO SYSTEMS INC. $22 (Nasdaq symbol CSCO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.2 billion; Market cap: $114.4 billion; Priceto- sales ratio: 2.5; Dividend yield 3.4%; TSINetwork Rating: Average; www.cisco.com) plans to invest $1 billion over the next two years on building a new cloud-computing service, which will let businesses lease data processing and storage systems instead of buying their own.
This is a small investment for Cisco, which earned $2.5 billion, or $0.47 a share, in its latest quarter. However, cloud computing could become an important new business for Cisco, and cut its reliance on selling routers and other networking hardware.
Demand for cloud services is growing fast, as they let corporations and government agencies cut their computing costs. Moreover, these big clients are more likely to trust wellestablished suppliers like Cisco instead of other cloud competitors like Amazon.com, which cater mainly to smaller businesses. (Note— Amazon is a recommendation of Stock Pickers Digest, our newsletter that focuses on aggressive investments.)
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This is a small investment for Cisco, which earned $2.5 billion, or $0.47 a share, in its latest quarter. However, cloud computing could become an important new business for Cisco, and cut its reliance on selling routers and other networking hardware.
Demand for cloud services is growing fast, as they let corporations and government agencies cut their computing costs. Moreover, these big clients are more likely to trust wellestablished suppliers like Cisco instead of other cloud competitors like Amazon.com, which cater mainly to smaller businesses. (Note— Amazon is a recommendation of Stock Pickers Digest, our newsletter that focuses on aggressive investments.)
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MCDONALD’S CORP. $96 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 989.9 million; Market cap: $95.0 billion; Price-to-sales ratio: 3.4; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.mcdonalds.com) operates 35,400 fast food restaurants in 119 countries. The company serves a wide variety of food, but it’s best known for its hamburgers and french fries.
McDonald’s continues to renovate its restaurants, launch new menu items— such as premium coffee— and appeal to cost-conscious consumers through its popular Dollar Menu. These improvements raised its revenue by 23.6%, from $22.7 billion in 2009 to $28.1 billion in 2013.
Same-store sales rose just 0.2% in 2013, because the company attracted 1.9% fewer customers, which offset higher spending per visit.
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McDonald’s continues to renovate its restaurants, launch new menu items— such as premium coffee— and appeal to cost-conscious consumers through its popular Dollar Menu. These improvements raised its revenue by 23.6%, from $22.7 billion in 2009 to $28.1 billion in 2013.
Same-store sales rose just 0.2% in 2013, because the company attracted 1.9% fewer customers, which offset higher spending per visit.
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FAIR ISAAC CORP. (New York symbol FICO; www.fairisaac.com) makes FICO Scores, the computer program that dominates the market for software that businesses use to evaluate customer creditworthiness. The company is also profiting by selling software that helps credit card issuers control fraud and analyze cardholders’ spending patterns....
STATE STREET CORP. $73 (New York symbol STT; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 415.2 million; Market cap: $30.3 billion; Price-to-sales ratio: 3.0; Dividend yield: 1.9%; TSINetwork Rating: Average; www.statestreet.com) sells accounting and administrative services to large investors, like mutual funds and pension plans.
State Street has raised its quarterly dividend by 13.3%, to $0.34 a share from $0.30. The new annual rate of $1.36 yields 1.9%. State Street also plans to repurchase $1.8 billion worth of its shares by June 30, 2016. It spent $1.65 billion on buybacks in 2014.
The company’s fee income rises and falls with the value of the mutual funds and other securities it manages. Thanks to improving stock markets and new contracts, it will likely earn $5.16 a share in 2015, up from $5.09 in 2014. The stock trades at 14.1 times that forecast.
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State Street has raised its quarterly dividend by 13.3%, to $0.34 a share from $0.30. The new annual rate of $1.36 yields 1.9%. State Street also plans to repurchase $1.8 billion worth of its shares by June 30, 2016. It spent $1.65 billion on buybacks in 2014.
The company’s fee income rises and falls with the value of the mutual funds and other securities it manages. Thanks to improving stock markets and new contracts, it will likely earn $5.16 a share in 2015, up from $5.09 in 2014. The stock trades at 14.1 times that forecast.
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