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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THE BOEING CO. $107 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 758.7 million; Market cap: $81.1 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.boeing.com) is a leading maker of passenger jets.
The company launched its latest plane, the 787 Dreamliner, in 2011. The 787 uses advanced materials that are lighter than aluminum. That makes it 20% more fuel efficient than comparable planes. It also features state-of-the-art jet engines and electronics.
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The company launched its latest plane, the 787 Dreamliner, in 2011. The 787 uses advanced materials that are lighter than aluminum. That makes it 20% more fuel efficient than comparable planes. It also features state-of-the-art jet engines and electronics.
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JONES GROUP INC. $16 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.1 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.3; Dividend yield: 1.3%; TSINetwork Rating: Average; www.jonesgroupinc.com) designs clothing, accessories and footwear for men and women. Its major brands include Jones New York and Gloria Vanderbilt.
The stock has jumped 46% since the start of 2013. That’s largely due to speculation that the company is looking to sell itself.
Meanwhile, in response to slowing sales, Jones plans to close 170 of its 574 stores and cut its workforce by 8%. This should lower its annual costs by $40 million when it completes the plan in 2014. To put that in context, Jones earned $10.8 million, or $0.15 a share, before restructuring costs in the first quarter of 2013.
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The stock has jumped 46% since the start of 2013. That’s largely due to speculation that the company is looking to sell itself.
Meanwhile, in response to slowing sales, Jones plans to close 170 of its 574 stores and cut its workforce by 8%. This should lower its annual costs by $40 million when it completes the plan in 2014. To put that in context, Jones earned $10.8 million, or $0.15 a share, before restructuring costs in the first quarter of 2013.
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APACHE CORP. $83 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 391.9 million; Market cap: $32.5 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.0%; TSINetwork Rating: Average; www.apachecorp.com) has agreed to sell most of its offshore oil and gas properties in the Gulf of Mexico for $3.75 billion. The sale, which should close in September 2013, is part of Apache’s plan to focus on its less risky onshore operations.
The company aims to sell $4 billion of its less important assets in 2013. It will use half of the proceeds to buy back shares and the other half to pay down its $11.5-billion long-term debt.
Apache is a hold....
The company aims to sell $4 billion of its less important assets in 2013. It will use half of the proceeds to buy back shares and the other half to pay down its $11.5-billion long-term debt.
Apache is a hold....
DIAGEO PLC ADRs $123 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 627.6 million; Market cap: $77.2 billion; Price-to-sales ratio: 4.6; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.diageo.com) has raised its stake in United Spirits, India’s largest distiller, from 10.04% to 25.02%. Diageo is now United Spirits’ largest shareholder. It also controls the company through voting agreements with other major shareholders.
Diageo paid 594.4 million British pounds for this additional stake (1 British pound = $1.58 Canadian). To put that in context, the company earned 1.5 billion pounds, or 2.44 pounds per ADR, in the six months ended December 31, 2012. (Each American Depositary Receipt represents four Diageo common shares.)
The purchase will help Diageo profit from rising demand for premium spirits in India. However, it will take at least a year before the new operations add to the company’s earnings.
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Diageo paid 594.4 million British pounds for this additional stake (1 British pound = $1.58 Canadian). To put that in context, the company earned 1.5 billion pounds, or 2.44 pounds per ADR, in the six months ended December 31, 2012. (Each American Depositary Receipt represents four Diageo common shares.)
The purchase will help Diageo profit from rising demand for premium spirits in India. However, it will take at least a year before the new operations add to the company’s earnings.
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MCCORMICK & CO. INC. $72 (New York symbol MKC; Income Portfolio, Consumer sector; Shares outstanding: 132.0 million; Market cap: $9.5 billion; Price-to-sales ratio: 2.4; Dividend yield: 1.9%; TSINetwork Rating: Average; www.mccormick.com) earned $78.6 million in its fiscal 2013 second quarter, which ended May 31, 2013. That’s down 2.2% from $80.4 million a year earlier. Earnings per share fell 1.7%, to $0.59 from $0.60, on fewer shares outstanding. If you disregard costs to integrate a Chinese maker of bouillon products that McCormick recently purchased, it would have earned $0.61 a share in the latest quarter.
Sales rose 1.9%, to $1.0 billion from $984.0 million. Sales to consumers (59% of the total) rose 3.9%, mainly because the company launched successful new products and improved its marketing. It also raised its prices. However, sales to businesses (41% of the total) fell 0.9%, mainly due to fewer orders from fast-food restaurants in the U.S.
McCormick is a buy.
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Sales rose 1.9%, to $1.0 billion from $984.0 million. Sales to consumers (59% of the total) rose 3.9%, mainly because the company launched successful new products and improved its marketing. It also raised its prices. However, sales to businesses (41% of the total) fell 0.9%, mainly due to fewer orders from fast-food restaurants in the U.S.
McCormick is a buy.
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MCDONALD’S CORP. $97 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.0 billion; Market cap: $97.0 billion; Price-to-sales ratio: 3.6; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.mcdonalds.com) plans to open its first restaurant in Vietnam next year.
This new outlet will face strong competition from other U.S. fast food chains, such as KFC, Pizza Hut, Starbucks and Subway, that already operate in the country. However, the population is young and eager to embrace foreign brands. Moreover, the son-in-law of Vietnam’s prime minister will own and operate this franchise. That cuts the risk of this expansion.
McDonald’s is a buy....
This new outlet will face strong competition from other U.S. fast food chains, such as KFC, Pizza Hut, Starbucks and Subway, that already operate in the country. However, the population is young and eager to embrace foreign brands. Moreover, the son-in-law of Vietnam’s prime minister will own and operate this franchise. That cuts the risk of this expansion.
McDonald’s is a buy....
J.P. MORGAN CHASE & CO. $57 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.8 billion; Market cap: $216.6 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.7%; TSINetwork Rating: Average; www. jpmorganchase.com) cut its loan-loss provisions by 78.0% in the second quarter of 2013, to $47 million from $214 million a year earlier. It also improved its efficiency ratio to 62.9% from 67.5%.
These savings helped raise Morgan’s earnings by 31.0% in the quarter, to $6.5 billion from $5.0 billion a year ago. Due to fewer shares outstanding, earnings per share rose 32.2%, to $1.60 from $1.21. Revenue gained 13.7%, to $25.2 billion from $22.2 billion. That’s mainly due to higher fees from its wealth management division and gains from trading securities.
An unexpected $6-billion loss at Morgan’s trading division caused the stock to fall to $32 in June 2012, but it has rebounded strongly. It now trades at 9.7 times Morgan’s likely 2013 earnings of $5.89 a share. The $1.52-a-share dividend yields 2.7%.
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These savings helped raise Morgan’s earnings by 31.0% in the quarter, to $6.5 billion from $5.0 billion a year ago. Due to fewer shares outstanding, earnings per share rose 32.2%, to $1.60 from $1.21. Revenue gained 13.7%, to $25.2 billion from $22.2 billion. That’s mainly due to higher fees from its wealth management division and gains from trading securities.
An unexpected $6-billion loss at Morgan’s trading division caused the stock to fall to $32 in June 2012, but it has rebounded strongly. It now trades at 9.7 times Morgan’s likely 2013 earnings of $5.89 a share. The $1.52-a-share dividend yields 2.7%.
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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.
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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.
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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.
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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.
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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.
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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.
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