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.
Read More
Close
WELLS FARGO & CO. $44 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $233.2 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.7%; TSINetwork Rating: Average; www.wellsfargo.com) set aside $652 million to cover bad loans in the three months ended June 30, 2013, down 63.8% from $1.8 billion a year earlier. That helped push up its earnings by 19.7%, to $5.3 billion, or $0.98 a share. A year ago, it earned $4.4 billion, or $0.82 a share.
Revenue rose 0.4%, to $21.4 billion from $21.3 billion. Borrowers continue to refinance their mortgages at lower rates, which cuts Wells Fargo’s interest income. However, the bank is doing a good job of getting its clients to sign up for more services, such as credit cards and wealth management. As a result, income from fees and other sources rose 3.7%.
In addition, Wells Fargo continues to cut its operating costs, like salaries and rent. In the latest quarter, its efficiency ratio (non-interest operating expenses divided by revenue— the lower, the better) improved to 57.3% from 58.2% a year ago.
...
Revenue rose 0.4%, to $21.4 billion from $21.3 billion. Borrowers continue to refinance their mortgages at lower rates, which cuts Wells Fargo’s interest income. However, the bank is doing a good job of getting its clients to sign up for more services, such as credit cards and wealth management. As a result, income from fees and other sources rose 3.7%.
In addition, Wells Fargo continues to cut its operating costs, like salaries and rent. In the latest quarter, its efficiency ratio (non-interest operating expenses divided by revenue— the lower, the better) improved to 57.3% from 58.2% a year ago.
...
FEDEX CORP. $106 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 316.6 million; Market cap: $33.6 billion; Price-to-sales ratio: 0.8; Dividend yield: 0.6%; TSINetwork Rating: Average; www.fedex.com) delivers packages and documents in the U.S. and over 220 other countries and territories.
The stock has moved up in the past few weeks, partly due to speculation that activist investment firm Pershing Square Capital Management (see page 71) will soon make a significant investment in FedEx.
However, it seems unlikely that Pershing would be interested in FedEx, because it prefers underperforming firms that could spur their earnings by cutting costs. FedEx is already restructuring as more companies choose slower but cheaper delivery methods, like trucks and ships, over its more expensive overnight international air service.
...
The stock has moved up in the past few weeks, partly due to speculation that activist investment firm Pershing Square Capital Management (see page 71) will soon make a significant investment in FedEx.
However, it seems unlikely that Pershing would be interested in FedEx, because it prefers underperforming firms that could spur their earnings by cutting costs. FedEx is already restructuring as more companies choose slower but cheaper delivery methods, like trucks and ships, over its more expensive overnight international air service.
...
CINTAS CORP. $48 (Nasdaq symbol CTAS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 122.3 million; Market cap: $5.9 billion; Price-to-sales ratio: 1.4; 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 its 2013 fiscal year, which ended May 31, 2013, Cintas’s sales rose 5.2%, to a record $4.3 billion from $4.1 billion a year earlier. Sales at the uniform business, which supplied 71% of Cintas’s overall revenue, rose 4.5%, while sales at its other divisions (29% of the total) gained 6.9%. Earnings increased 6.0%, to $315.4 million from $297.6 million. Due to fewer shares outstanding, earnings per share rose 11.0%, to $2.52 from $2.27.
The stock trades at a reasonable 17.7 times the $2.71 a share that Cintas will probably earn in fiscal 2014.
...
In its 2013 fiscal year, which ended May 31, 2013, Cintas’s sales rose 5.2%, to a record $4.3 billion from $4.1 billion a year earlier. Sales at the uniform business, which supplied 71% of Cintas’s overall revenue, rose 4.5%, while sales at its other divisions (29% of the total) gained 6.9%. Earnings increased 6.0%, to $315.4 million from $297.6 million. Due to fewer shares outstanding, earnings per share rose 11.0%, to $2.52 from $2.27.
The stock trades at a reasonable 17.7 times the $2.71 a share that Cintas will probably earn in fiscal 2014.
...
INTERNATIONAL BUSINESS MACHINES CORP. $197 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $216.7 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.9%; TSINetwork Rating: Above Average; www.ibm.com) continues to enjoy strong demand for its software, as it helps businesses analyze large amounts of data and improve their efficiency. That’s helping IBM offset slow sales of its mainframe computers.
IBM is a buy.
TEXAS INSTRUMENTS INC. $39 (Nasdaq symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $42.9 billion; Price-to-sales ratio: 3.5; Dividend yield: 2.9%; TSINetwork Rating: Average; www.ti.com) plans to stop making chips for cellphones due to intense competition from larger chipmakers. Instead, it is shifting to analog chips, which convert sounds and temperatures into digital signals that computers can understand. While not as profitable, sales of analog chips are much less volatile than wireless chips.
...
IBM is a buy.
TEXAS INSTRUMENTS INC. $39 (Nasdaq symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $42.9 billion; Price-to-sales ratio: 3.5; Dividend yield: 2.9%; TSINetwork Rating: Average; www.ti.com) plans to stop making chips for cellphones due to intense competition from larger chipmakers. Instead, it is shifting to analog chips, which convert sounds and temperatures into digital signals that computers can understand. While not as profitable, sales of analog chips are much less volatile than wireless chips.
...
INTEL CORP. $23 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.0 billion; Market cap: $115.0 billion; Price-to-sales ratio: 2.2; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.intel.com) is the world’s leading computer chip maker. Its products power 80% of the world’s personal computers.
In the three months ended June 29, 2013, Intel’s sales fell 5.1%, to $12.8 billion from $13.5 billion a year earlier. Sales of personal computer chips (which supply 63% of Intel’s total sales) fell 7.5%, while sales of chips for server computers were flat. Earnings declined 29.3%, to $2.0 billion from $2.8 billion. Due to fewer shares outstanding, earnings per share fell 27.8%, to $0.39 from $0.54.
Intel continues to invest heavily in new chips. It spent $2.52 billion (or 19.6% of its sales) on research in the latest quarter, up slightly from $2.51 billion (or 18.6% of sales) a year earlier.
...
In the three months ended June 29, 2013, Intel’s sales fell 5.1%, to $12.8 billion from $13.5 billion a year earlier. Sales of personal computer chips (which supply 63% of Intel’s total sales) fell 7.5%, while sales of chips for server computers were flat. Earnings declined 29.3%, to $2.0 billion from $2.8 billion. Due to fewer shares outstanding, earnings per share fell 27.8%, to $0.39 from $0.54.
Intel continues to invest heavily in new chips. It spent $2.52 billion (or 19.6% of its sales) on research in the latest quarter, up slightly from $2.51 billion (or 18.6% of sales) a year earlier.
...
MICROSOFT CORP. $32 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.3 billion; Market cap: $265.6 billion; Priceto- sales ratio: 3.6; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.microsoft.com) continues to benefit from strong demand for its business software, particularly programs that run server computers and data centres.
However, falling demand for desktops and laptops is hurting sales of the company’s new Windows 8 operating system. Sales of mobile devices powered by Windows 8 have also suffered in the face of strong competition from other smartphones and tablets.
In its 2013 fiscal year, which ended June 30, 2013, Microsoft’s revenue rose 5.6%, to $77.8 billion from $73.7 billion in 2012. However, earnings fell 5.4%, to $27.0 billion, or $2.62 a share, from $28.5 billion, or $2.78 a share. These figures exclude several unusual items, such as a $900-million writedown of unsold Surface RT tablet computers. To spur sales, Microsoft has cut the price of these tablets by 30%.
...
However, falling demand for desktops and laptops is hurting sales of the company’s new Windows 8 operating system. Sales of mobile devices powered by Windows 8 have also suffered in the face of strong competition from other smartphones and tablets.
In its 2013 fiscal year, which ended June 30, 2013, Microsoft’s revenue rose 5.6%, to $77.8 billion from $73.7 billion in 2012. However, earnings fell 5.4%, to $27.0 billion, or $2.62 a share, from $28.5 billion, or $2.78 a share. These figures exclude several unusual items, such as a $900-million writedown of unsold Surface RT tablet computers. To spur sales, Microsoft has cut the price of these tablets by 30%.
...
APPLE INC. $441 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 940.1 million; Market cap: $414.6 billion; Price-to-sales ratio: 2.4; Dividend yield: 2.8%; TSINetwork Rating: Average; www.apple.com) gets 69% of its sales from its hugely popular mobile devices: the iPhone smartphone and the iPad tablet computer. The remaining 31% comes from its Mac computers and iPod music players.
In its 2013 third quarter, which ended June 29, 2013, Apple’s sales rose 0.9%, to $35.3 billion from $35.0 billion a year earlier. Thanks to strong demand for older, cheaper models, the company sold 31.2 million iPhones, up 20.0% from a year earlier. However, iPad sales fell 14.2%, to 14.6 million units. Apple also sold 6.6% fewer Mac computers, and 32.3% fewer iPods as many iPod users upgrade to iPhones.
Even with the higher sales, earnings in the quarter fell 21.8%, to $6.9 billion from $8.8 billion. Earnings per share fell 19.8%, to $7.47 from $9.32, on fewer shares outstanding.
...
In its 2013 third quarter, which ended June 29, 2013, Apple’s sales rose 0.9%, to $35.3 billion from $35.0 billion a year earlier. Thanks to strong demand for older, cheaper models, the company sold 31.2 million iPhones, up 20.0% from a year earlier. However, iPad sales fell 14.2%, to 14.6 million units. Apple also sold 6.6% fewer Mac computers, and 32.3% fewer iPods as many iPod users upgrade to iPhones.
Even with the higher sales, earnings in the quarter fell 21.8%, to $6.9 billion from $8.8 billion. Earnings per share fell 19.8%, to $7.47 from $9.32, on fewer shares outstanding.
...
CISCO SYSTEMS INC. $26 (Nasdaq symbol CSCO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.3 billion; Market cap: $137.8 billion; Priceto- sales ratio: 2.9; Dividend yield 2.6%; TSINetwork Rating: Average; www.cisco.com) is a leading maker of hardware and software that links and manages computer networks. The company’s hardware includes routers, local area network (LAN) and asynchronous transfer mode (ATM) switches, and dial-up access servers.
Like IBM and Texas Instruments (see box on page 73), Cisco is a good example of a tech company that has matured into a cyclical growth stalwart. Even though its sales growth has slowed in the past few years, Cisco still dominates its field. That’s partly because it has formed long-term relationships with government agencies and other large customers.
The company also continues to benefit from its 2011 restructuring plan, which included selling its money-losing consumer-products businesses and cutting jobs.
...
Like IBM and Texas Instruments (see box on page 73), Cisco is a good example of a tech company that has matured into a cyclical growth stalwart. Even though its sales growth has slowed in the past few years, Cisco still dominates its field. That’s partly because it has formed long-term relationships with government agencies and other large customers.
The company also continues to benefit from its 2011 restructuring plan, which included selling its money-losing consumer-products businesses and cutting jobs.
...
PROCTER & GAMBLE CO. $80 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.7 billion; Market cap: $216.0 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.pg.com) began operating in 1837 and is now one of the world’s largest makers of household and personal-care products. It has 25 different brands that each generate over $1 billion in annual sales.
The company has five main divisions: Fabric Care and Home Care products, such as Tide laundry detergent and Duracell batteries (32% of 2012 sales, 26% of earnings); Beauty goods like Olay cosmetics (24%, 22%); Baby Care and Family Care products, including Pampers diapers (19%, 19%); Health Care items such as Crest toothpaste (15%, 17%); and Grooming products, including Gillette razors (10%, 16%). Wal-Mart accounts for 14% of the company’s sales.
The recession cut Procter’s sales by 5.5%, from $83.5 billion in 2008 to $78.9 billion in 2009 (fiscal years end June 30). Sales recovered to $82.6 billion in 2011, and rose to $83.7 billion in 2012.
...
The company has five main divisions: Fabric Care and Home Care products, such as Tide laundry detergent and Duracell batteries (32% of 2012 sales, 26% of earnings); Beauty goods like Olay cosmetics (24%, 22%); Baby Care and Family Care products, including Pampers diapers (19%, 19%); Health Care items such as Crest toothpaste (15%, 17%); and Grooming products, including Gillette razors (10%, 16%). Wal-Mart accounts for 14% of the company’s sales.
The recession cut Procter’s sales by 5.5%, from $83.5 billion in 2008 to $78.9 billion in 2009 (fiscal years end June 30). Sales recovered to $82.6 billion in 2011, and rose to $83.7 billion in 2012.
...
ACI WORLDWIDE (Nasdaq symbol ACIW; www.tsainc.com) 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 mid-February 2012, ACI completed its $540 million purchase of S1 Corp. This acquisition has been a good fit: S1 sells transaction software for banks, credit unions, retailers and other payment processors. It has over 3,000 clients worldwide....
