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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INTERNATIONAL BUSINESS MACHINES CORP. $176 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $193.6 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.2%; TSINetwork Rating: Above Average; www.ibm.com) is selling its low-end server operations to China’s Lenovo Group, the same company that acquired IBM’s personal computer division in 2005. IBM will hang on to its more profitable mainframe computer business.
Because Lenovo is a Chinese company, the deal could run into trouble on national security grounds. But if regulators approve, IBM will receive $2 billion in cash and $300 million in Lenovo shares. The cash would help the company expand in areas with greater potential, including cloud computing and analytics services, which help businesses analyze large amounts of data and improve their efficiency.
IBM is a buy....
Because Lenovo is a Chinese company, the deal could run into trouble on national security grounds. But if regulators approve, IBM will receive $2 billion in cash and $300 million in Lenovo shares. The cash would help the company expand in areas with greater potential, including cloud computing and analytics services, which help businesses analyze large amounts of data and improve their efficiency.
IBM is a buy....
TEXAS INSTRUMENTS INC. $42 (Nasdaq symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $46.2 billion; Price-to-sales ratio: 4.0; Dividend yield: 2.9%; TSINetwork Rating: Average; www.ti.com) gets 65% of its revenue from analog chips, which convert inputs like touch, sound and pressure into electronic signals. Manufacturers use these chips in a variety of products, including cars, medical devices and appliances.
The company gets a further 20% of its revenue by making processor chips, which perform mathematical calculations. Many clients supply their own software for these chips. That lets Texas Instruments form long-term relationships with these users, as it helps them carry their software over when they upgrade.
The remaining 15% of revenue comes from other chips, handheld calculators and licensing. In the quarter ended December 31, 2013, the company’s earnings jumped 93.6%, to $511 million from $264 million a year earlier. Earnings per share rose 100.0%, to $0.46 from $0.23, on fewer shares outstanding. Texas Instruments recently quit making chips for mobile devices and closed plants as a result. Without closure-related costs, it earned $0.49 a share in the latest quarter.
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The company gets a further 20% of its revenue by making processor chips, which perform mathematical calculations. Many clients supply their own software for these chips. That lets Texas Instruments form long-term relationships with these users, as it helps them carry their software over when they upgrade.
The remaining 15% of revenue comes from other chips, handheld calculators and licensing. In the quarter ended December 31, 2013, the company’s earnings jumped 93.6%, to $511 million from $264 million a year earlier. Earnings per share rose 100.0%, to $0.46 from $0.23, on fewer shares outstanding. Texas Instruments recently quit making chips for mobile devices and closed plants as a result. Without closure-related costs, it earned $0.49 a share in the latest quarter.
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CISCO SYSTEMS INC. $22 (Nasdaq symbol CSCO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.4 billion; Market cap: $118.8 billion; Price-to-sales ratio: 2.4; Dividend yield 3.1%; TSINetwork Rating: Average; www.cisco.com) makes hardware and software that links and manages computer networks. Its hardware includes routers, local area network (LAN) and asynchronous transfer mode (ATM) switches, and server computers. Cisco mainly sells this gear to large businesses and governments.
In its 2014 first quarter, which ended October 26, 2013, Cisco’s earnings rose 11.6%, to $2.9 billion from $2.6 billion a year earlier. Per-share earnings gained 10.4%, to $0.53 from $0.48, because it had more shares outstanding.
Revenue rose just 1.8%, to $12.1 billion from $11.9 billion. Many businesses are holding off on router purchases as they wait for Cisco to launch new models. However, demand for data centre and wireless networking equipment remains steady. As well, revenue from technical support and other services (22% of the total) rose 4.2%.
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In its 2014 first quarter, which ended October 26, 2013, Cisco’s earnings rose 11.6%, to $2.9 billion from $2.6 billion a year earlier. Per-share earnings gained 10.4%, to $0.53 from $0.48, because it had more shares outstanding.
Revenue rose just 1.8%, to $12.1 billion from $11.9 billion. Many businesses are holding off on router purchases as they wait for Cisco to launch new models. However, demand for data centre and wireless networking equipment remains steady. As well, revenue from technical support and other services (22% of the total) rose 4.2%.
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MICROSOFT CORP. $37 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.3 billion; Market cap: $307.1 billion; Price-to-sales ratio: 3.7; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.microsoft.com) gets most of its revenue from Windows, the software that powers over 90% of the world’s computers, and its Office suite of business programs.
More users are upgrading their systems because Microsoft will soon stop supporting Windows XP, which it launched in 2001. At the same time, demand for its server software and cloud computing services is rising. In addition, the company launched new versions of its Xbox game console and Surface tablet before the Christmas shopping season.
These strengths lifted Microsoft’s revenue by 14.3% in its fiscal 2014 second quarter (which ended December 31, 2013), to $24.5 billion from $21.5 billion a year earlier. Earnings gained 2.8%, to $6.6 billion, or $0.78 a share, from $6.4 billion or $0.76.
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More users are upgrading their systems because Microsoft will soon stop supporting Windows XP, which it launched in 2001. At the same time, demand for its server software and cloud computing services is rising. In addition, the company launched new versions of its Xbox game console and Surface tablet before the Christmas shopping season.
These strengths lifted Microsoft’s revenue by 14.3% in its fiscal 2014 second quarter (which ended December 31, 2013), to $24.5 billion from $21.5 billion a year earlier. Earnings gained 2.8%, to $6.6 billion, or $0.78 a share, from $6.4 billion or $0.76.
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APPLE INC. $501 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 892.4 million; Market cap: $447.1 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.4%; TSINetwork Rating: Average; www.apple.com) continues to profit from its hugely popular mobile devices: the iPhone smartphone and the iPad tablet computer. These products account for 75% of its sales. The remaining 25% comes from its Mac computers, iPod music players and revenue from its iTunes online store.
In its 2014 first quarter, which ended December 28, 2013, Apple’s sales rose 5.7%, to $57.6 billion from $54.5 billion a year earlier. The company sold a record 51.0 million iPhones in the latest quarter, up 6.8%. iPad sales gained 13.9%, to a record 26.0 million units. Apple also sold 19.1% more Mac computers, but iPod sales fell 52.3% as users continue to upgrade to iPhones.
However, Apple is paying more for components after it upgraded its iPhones and iPads in 2013. As a result, its earnings were unchanged at $13.1 billion. Earnings per share rose 5.0%, to $14.50 from $13.81, on fewer shares outstanding.
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In its 2014 first quarter, which ended December 28, 2013, Apple’s sales rose 5.7%, to $57.6 billion from $54.5 billion a year earlier. The company sold a record 51.0 million iPhones in the latest quarter, up 6.8%. iPad sales gained 13.9%, to a record 26.0 million units. Apple also sold 19.1% more Mac computers, but iPod sales fell 52.3% as users continue to upgrade to iPhones.
However, Apple is paying more for components after it upgraded its iPhones and iPads in 2013. As a result, its earnings were unchanged at $13.1 billion. Earnings per share rose 5.0%, to $14.50 from $13.81, on fewer shares outstanding.
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T. ROWE PRICE GROUP INC. $79 (Nasdaq symbol TROW; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 260.9 million; Market cap: $20.6 billion; Price-to-sales ratio: 6.4; Dividend yield: 1.9%; TSINetwork Rating: Average; www.troweprice- .com) earned $284.8 million in the fourth quarter of 2013, up 23.9% from $229.9 million a year earlier. Due to more shares outstanding, earnings per share rose 20.5%, to $1.06 from $0.88.
Improving stock markets continue to spur demand for its mutual funds. Revenue rose 18.1%, to $929.8 million from $787.3 million.
T. Rowe Price is a buy....
Improving stock markets continue to spur demand for its mutual funds. Revenue rose 18.1%, to $929.8 million from $787.3 million.
T. Rowe Price is a buy....
VISA INC. $217 (New York symbol V; Conservative Growth Portfolio, Finance sector; Shares outstanding: 636.6 million; Market cap: $138.1 billion; Price-to-sales ratio: 12.3; Dividend yield: 0.7%; TSINetwork Rating: Above Average; www.visa.com) is gaining from rising online shopping and higher credit and debit card use, particularly overseas. The company also has no credit risk.
Moreover, Visa stands to benefit from the recent theft of credit card data from Target and Neiman Marcus. These incidents could spur new regulations that would force retailers to install chip-based card readers, which are more secure than magnetic-swipe devices and would cut down on fraud. Retailers would probably have to pay for these upgrades, not Visa.
Visa is a buy....
Moreover, Visa stands to benefit from the recent theft of credit card data from Target and Neiman Marcus. These incidents could spur new regulations that would force retailers to install chip-based card readers, which are more secure than magnetic-swipe devices and would cut down on fraud. Retailers would probably have to pay for these upgrades, not Visa.
Visa is a buy....
MCDONALD’S CORP. $93 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 995.0 million; Market cap: $92.5 billion; Price-to-sales ratio: 3.4; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.mcdonalds.com) stands to rebound strongly from a slow 2013 as it builds more outlets in Asia, Africa and other fast-growing regions. Healthier menu items and premium coffees are also helping it attract new customers. However, a higher minimum wage in the U.S. would hurt its profits.
McDonald’s is a buy.
McDonald’s is a buy.
GOOGLE INC. $1,107 (Nasdaq symbol GOOG; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 334.1 million; Market cap: $369.8 billion; Price-to-sales ratio: 6.4; No dividends paid; TSINetwork Rating: Above Average; www.google.com) continues to profit from the shift to online advertising, even though it is earning less per ad. That’s because advertisers are paying less for ads on mobile devices, since they are more difficult to see on smaller screens.
However, Google’s Android software powers 80% of all mobile devices. That’s driving more traffic to its web sites. Google is also selling ads in bundles that cover multiple devices.
Google is a buy.
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However, Google’s Android software powers 80% of all mobile devices. That’s driving more traffic to its web sites. Google is also selling ads in bundles that cover multiple devices.
Google is a buy.
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CONAGRA FOODS INC. $32 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 420.4 million; Market cap: $13.4 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.1%; TSINetwork Rating: Above Average; www.- conagrafoods.com) is facing strong competition from other processed food makers, which has slowed its earnings growth. Even so, the stock has held up well since we made it our #1 buy for 2013.
The company continues to cut costs— including through a new flour-milling joint venture— after last year’s purchase of private-label food maker Ralcorp. These savings will help offset the loss of a big corporate customer. Moreover, ConAgra trades at a moderate 13.6 times its projected fiscal 2014 earnings of $2.35 a share. The stock yields a high 3.1%.
ConAgra is a buy.
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The company continues to cut costs— including through a new flour-milling joint venture— after last year’s purchase of private-label food maker Ralcorp. These savings will help offset the loss of a big corporate customer. Moreover, ConAgra trades at a moderate 13.6 times its projected fiscal 2014 earnings of $2.35 a share. The stock yields a high 3.1%.
ConAgra is a buy.
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