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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INTERNATIONAL BUSINESS MACHINES CORP. $189 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $207.9 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.9%; TSINetwork Rating: Above Average; www.ibm.com) continues to add to its software expertise.
The company recently paid an undisclosed sum for U.K.-based Daeja Image Systems. This company’s products make it easier to view digital images in hundreds of different computer-file formats, without first installing the program that created the original image. Daeja’s products also help businesses mask sensitive information on computer images, and restrict access to certain files.
IBM is a buy.
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The company recently paid an undisclosed sum for U.K.-based Daeja Image Systems. This company’s products make it easier to view digital images in hundreds of different computer-file formats, without first installing the program that created the original image. Daeja’s products also help businesses mask sensitive information on computer images, and restrict access to certain files.
IBM is a buy.
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YUM! BRANDS INC. $72 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 446.2 million; Market cap: $32.1 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.yum.com) has raised its quarterly dividend by 10.4%, to $0.37 a share from $0.335. The new annual rate of $1.48 yields 2.1%. This was the ninth annual increase since Yum began paying dividends in 2004.
The stock has held up well, even though sales at its Chinese KFC outlets continue to suffer in the wake of false allegations that they bought chicken with higher-than-permitted levels of antibiotics. Yum is responding with an advertising campaign to emphasize the quality of its ingredients. It feels this will spur its Chinese sales.
Yum Brands is still a buy....
The stock has held up well, even though sales at its Chinese KFC outlets continue to suffer in the wake of false allegations that they bought chicken with higher-than-permitted levels of antibiotics. Yum is responding with an advertising campaign to emphasize the quality of its ingredients. It feels this will spur its Chinese sales.
Yum Brands is still a buy....
SONY CORP. ADRs $21 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $21.0 billion; Price-to-sales ratio: 0.3; Dividend yield: 1.3%; TSINetwork Rating: Average; www.sony.com) has rejected a plan from Dan Loeb, an activist investor who owns 7% of the company’s shares. Loeb wants Sony to sell 15% to 20% of its entertainment division, which makes movies, TV shows and music recordings and accounts for 16% of Sony’s revenue.
The company feels that owning media content gives it an edge over other electronics makers.
Meanwhile, Sony’s revenue fell 9.8% in its fiscal 2014 first quarter, which ended June 30, 2013, to $17.3 billion from $19.2 billion a year earlier. That’s partly because the company sold its chemical operations in September 2012. Weak camera demand also hurt its revenue.
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The company feels that owning media content gives it an edge over other electronics makers.
Meanwhile, Sony’s revenue fell 9.8% in its fiscal 2014 first quarter, which ended June 30, 2013, to $17.3 billion from $19.2 billion a year earlier. That’s partly because the company sold its chemical operations in September 2012. Weak camera demand also hurt its revenue.
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IDEXX LABORATORIES INC. $98 (Nasdaq symbol IDXX; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 52.5 million; Market cap: $5.1 billion; Price-to-sales ratio: 4.1; No dividends paid; TSINetwork Rating: Average; www.idexx.com) gets 85% of its sales by making equipment that veterinarians use to detect diseases in pets. The remaining 15% comes from sales of systems that detect contaminants in livestock, water and dairy products.
Idexx is benefiting as the improving economy encourages people to take their pets to the vet more often. That has pushed up sales of Idexx’s equipment, such as its Pro-Cyte Dx hematology analyzer, which processes animal blood tests in just two minutes.
Rising equipment sales have also spurred higher demand for consumables, such as test tubes and slides, that veterinarians must constantly replenish.
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Idexx is benefiting as the improving economy encourages people to take their pets to the vet more often. That has pushed up sales of Idexx’s equipment, such as its Pro-Cyte Dx hematology analyzer, which processes animal blood tests in just two minutes.
Rising equipment sales have also spurred higher demand for consumables, such as test tubes and slides, that veterinarians must constantly replenish.
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CINTAS CORP. $51 (Nasdaq symbol CTAS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 120.8 million; Market cap: $6.2 billion; Price-to-sales ratio: 1.5; Dividend yield: 1.3%; TSINetwork Rating: Average; www.cintas- .com) designs and makes uniforms, which it sells to over 900,000 businesses, mainly in North America. It also offers related services, including office cleaning and document shredding.
In the first quarter of its 2014 fiscal year, which ended August 31, 2013, Cintas’s sales rose 6.6%, to $1.12 billion from $1.05 billion a year earlier. Sales at the uniform business, which supplied 71% of Cintas’s overall revenue, rose 5.0%, while sales at its other divisions (29% of the total) gained 10.5%. Earnings increased 1.3%, to $77.8 million from $76.7 million. Cintas spent $107.0 million on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose 5.0%, to $0.63 from $0.60.
In fiscal 2014, Cintas expects to earn $2.70 to $2.79 a share. It trades at a reasonable 18.6 times the midpoint of that range.
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In the first quarter of its 2014 fiscal year, which ended August 31, 2013, Cintas’s sales rose 6.6%, to $1.12 billion from $1.05 billion a year earlier. Sales at the uniform business, which supplied 71% of Cintas’s overall revenue, rose 5.0%, while sales at its other divisions (29% of the total) gained 10.5%. Earnings increased 1.3%, to $77.8 million from $76.7 million. Cintas spent $107.0 million on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose 5.0%, to $0.63 from $0.60.
In fiscal 2014, Cintas expects to earn $2.70 to $2.79 a share. It trades at a reasonable 18.6 times the midpoint of that range.
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J.P. MORGAN CHASE & CO. $52 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.8 billion; Market cap: $197.6 billion; Price-to-sales ratio: 1.9; Dividend yield: 2.9%; TSINetwork Rating: Average; www.jpmorganchase.com) has agreed to pay a total of $920 million in fines to U.S. and U.K. securities regulators.
That’s because the bank failed to disclose the true amount of losses it incurred in 2012 on complex trades it used to hedge its portfolio of corporate bonds. These losses ultimately amounted to $6 billion. Morgan has since strengthened oversight over its trading operations.
The fine is equal to 14% of the $6.5 billion, or $1.60 a share, that Morgan earned in the second quarter of 2013. Unlike similar settlements, Morgan admitted that it broke the law. That will probably spur class-action lawsuits by shareholders who lost money in the wake of Morgan’s hedging losses. However, proving that the bank deliberately misinformed investors would be difficult.
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That’s because the bank failed to disclose the true amount of losses it incurred in 2012 on complex trades it used to hedge its portfolio of corporate bonds. These losses ultimately amounted to $6 billion. Morgan has since strengthened oversight over its trading operations.
The fine is equal to 14% of the $6.5 billion, or $1.60 a share, that Morgan earned in the second quarter of 2013. Unlike similar settlements, Morgan admitted that it broke the law. That will probably spur class-action lawsuits by shareholders who lost money in the wake of Morgan’s hedging losses. However, proving that the bank deliberately misinformed investors would be difficult.
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QUAKER CHEMICAL CORP. $72 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 13.2 million; Market cap: $950.4 million; Price-to-sales ratio: 1.3; Dividend yield: 1.4%; TSINetwork Rating: Average; www.quakerchem.com) makes lubricants and chemicals that keep mechanical parts from rusting.
Quaker continues to benefit from recent acquisitions that have expanded its international operations: it now gets 60% of its sales from overseas. The company has also cut its costs and raised its prices, which has improved its profitability.
In the three months ended June 30, 2013, earnings jumped 43.5%, to $1.22 a share from $0.85 a year earlier. Without several unusual items, including a tax refund and charges related to a client’s bankruptcy, per-share earnings rose 11.1%, to $1.00 from $0.90.
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Quaker continues to benefit from recent acquisitions that have expanded its international operations: it now gets 60% of its sales from overseas. The company has also cut its costs and raised its prices, which has improved its profitability.
In the three months ended June 30, 2013, earnings jumped 43.5%, to $1.22 a share from $0.85 a year earlier. Without several unusual items, including a tax refund and charges related to a client’s bankruptcy, per-share earnings rose 11.1%, to $1.00 from $0.90.
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BRIGGS & STRATTON CORP. $21 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 47.9 million; Market cap: $1.0 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.briggsandstratton.com) is the world’s largest maker of lawn mower engines. The company also makes other home and garden equipment, such as portable generators, pressure washers and snow blowers.
In Briggs’s 2013 fiscal year, which ended June 30, 2013, its sales fell 9.9%, to $1.9 billion from $2.1 billion in fiscal 2012. That’s mainly because inventories remain high following last year’s droughts in North America and Australia, hurting demand for new lawn mowers and other equipment.
As well, Briggs recently stopped selling its products through mass retailers in the U.S. That’s because big chains demand lower prices from suppliers like Briggs, which hurts its profit margins.
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In Briggs’s 2013 fiscal year, which ended June 30, 2013, its sales fell 9.9%, to $1.9 billion from $2.1 billion in fiscal 2012. That’s mainly because inventories remain high following last year’s droughts in North America and Australia, hurting demand for new lawn mowers and other equipment.
As well, Briggs recently stopped selling its products through mass retailers in the U.S. That’s because big chains demand lower prices from suppliers like Briggs, which hurts its profit margins.
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MTS SYSTEMS CORP. $64 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.6 million; Market cap: $998.4 million; Price-to-sales ratio: 1.9; Dividend yield: 1.9%; 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 uncertain economy is prompting manufacturers to hold off on buying the company’s gear. In its fiscal 2013 third quarter, which ended June 29, 2013, MTS’s revenue fell 4.7%, to $135.1 million from $141.7 million a year earlier.
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The uncertain economy is prompting manufacturers to hold off on buying the company’s gear. In its fiscal 2013 third quarter, which ended June 29, 2013, MTS’s revenue fell 4.7%, to $135.1 million from $141.7 million a year earlier.
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TENNANT CO. $62 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.4 million; Market cap: $1.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.2%; 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 enjoy strong demand for floor cleaners that use its ec-H2O technology, which uses electricity to make tap water act like a detergent. That eliminates the need for soaps and lowers the machine’s operating costs.
However, municipal governments, particularly in Europe, are spending less on cleaning equipment. As a result, Tennant’s sales rose just 0.4% in the three months ended June 30, 2013, to $200.2 million from $199.5 million a year earlier. If you exclude the negative impact of foreign exchange rates and contributions from acquisitions, sales would have risen 0.9%.
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The company continues to enjoy strong demand for floor cleaners that use its ec-H2O technology, which uses electricity to make tap water act like a detergent. That eliminates the need for soaps and lowers the machine’s operating costs.
However, municipal governments, particularly in Europe, are spending less on cleaning equipment. As a result, Tennant’s sales rose just 0.4% in the three months ended June 30, 2013, to $200.2 million from $199.5 million a year earlier. If you exclude the negative impact of foreign exchange rates and contributions from acquisitions, sales would have risen 0.9%.
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