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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GENERAL MILLS INC. $49 (New York symbol GIS, Conservative Growth Portfolio, Consumer sector; Shares outstanding: 644.3 million; Market cap: $31.6 billion; Price-to-sales ratio: 1.9; Dividend yield: 3.1%; TSINetwork Rating: Above Average; www.generalmills.com) is one of the world’s largest food makers. Its top brands include Big G (cereal), Green Giant (canned and frozen vegetables), Pillsbury (baking dough), Old El Paso (tacos) and Progresso (soups and sauces).
In its fiscal 2013 third quarter, which ended February 24, 2013, General Mills’sales rose 7.5%, to $4.4 billion from $4.1 billion a year earlier. That’s mainly due to Yoki, a Brazilian snack food and seasoning maker that General Mills bought in August 2012. Without acquisitions, sales would have risen 2%.
Earnings rose 14.9%, to $420.9 million from $366.4 million. Earnings per share rose 16.4%, to $0.64 from $0.55, on fewer shares outstanding. These figures exclude a number of unusual items, such as costs to integrate new operations, and gains and losses on hedging contracts that General Mills uses to lock in prices of certain ingredients.
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In its fiscal 2013 third quarter, which ended February 24, 2013, General Mills’sales rose 7.5%, to $4.4 billion from $4.1 billion a year earlier. That’s mainly due to Yoki, a Brazilian snack food and seasoning maker that General Mills bought in August 2012. Without acquisitions, sales would have risen 2%.
Earnings rose 14.9%, to $420.9 million from $366.4 million. Earnings per share rose 16.4%, to $0.64 from $0.55, on fewer shares outstanding. These figures exclude a number of unusual items, such as costs to integrate new operations, and gains and losses on hedging contracts that General Mills uses to lock in prices of certain ingredients.
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KRAFT FOODS GROUP INC. $51 (Nasdaq symbol KRFT; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 593.4 million; Market cap: $30.3 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.kraftfoodsgroup.com) makes a variety of grocery products, including Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Jell-O desserts and Miracle Whip salad dressing.
Unlike Mondelez, Kraft prefers to focus on North America. That limits its growth but also cuts its risk.
As a stand-alone company, Kraft earned $1.6 billion, or $2.75 a share, in 2012. That’s down 7.5% from $1.8 billion, or $3.00 a share, in 2011. The decline is mainly due to costs related to a restructuring, which includes closing plants and making its remaining operations more efficient. Kraft expects to spend $650 million on this plan by the end of 2014.
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Unlike Mondelez, Kraft prefers to focus on North America. That limits its growth but also cuts its risk.
As a stand-alone company, Kraft earned $1.6 billion, or $2.75 a share, in 2012. That’s down 7.5% from $1.8 billion, or $3.00 a share, in 2011. The decline is mainly due to costs related to a restructuring, which includes closing plants and making its remaining operations more efficient. Kraft expects to spend $650 million on this plan by the end of 2014.
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MONDELEZ INTERNATIONAL INC. $31 (Nasdaq symbol MDLZ; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.8 billion; Market cap: $55.8 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.mondelezinternational.com) makes cookies and biscuits (Oreo, Chips Ahoy, Ritz), chocolate bars (Cadbury, Toblerone) and gum and candy (Trident, Chiclets, Halls cough drops). It also makes beverages, including coffee (Tassimo) and powdered fruit drinks (Tang), as well as grocery and cheese products for overseas markets. Mondelez gets 46% of its sales from developing countries, 35% from Europe and 19% from North America.
Mondelez aims to improve its efficiency by shutting less profitable plants and offices. Severance and other costs will total $925 million. The company didn’t say how much it expects the restructuring will save it after it is completed in 2014. However, Mondelez will probably use these savings to cut its long-term debt of $15.6 billion, which is equal to 28% of its market cap.
If you assume the October 2012 breakup of the old Kraft Foods Inc. into Mondelez and Kraft Foods Group (see right) occurred at the start of 2011, Mondelez would have earned $1.6 billion, or $0.86 a share, in 2012. That’s down 9.8% from $1.7 billion, or $0.97 a share, in 2011. If you exclude restructuring costs and other unusual items, per-share earnings would have risen by 0.7%, to $1.39 from $1.38,
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Mondelez aims to improve its efficiency by shutting less profitable plants and offices. Severance and other costs will total $925 million. The company didn’t say how much it expects the restructuring will save it after it is completed in 2014. However, Mondelez will probably use these savings to cut its long-term debt of $15.6 billion, which is equal to 28% of its market cap.
If you assume the October 2012 breakup of the old Kraft Foods Inc. into Mondelez and Kraft Foods Group (see right) occurred at the start of 2011, Mondelez would have earned $1.6 billion, or $0.86 a share, in 2012. That’s down 9.8% from $1.7 billion, or $0.97 a share, in 2011. If you exclude restructuring costs and other unusual items, per-share earnings would have risen by 0.7%, to $1.39 from $1.38,
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CONAGRA FOODS INC. $35 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 416.8 million; Market cap: $14.6 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www. conagrafoods.com) makes a variety of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddiwip whipped cream.
The company recently completed its $4.75-billion acquisition of Ralcorp Holdings, the largest maker of private-label food in the U.S.
The purchase helped push up ConAgra’s sales by 13.4% in its 2013 third quarter, which ended February 24, 2013, to $3.85 billion from $3.4 billion a year earlier. Ralcorp contributed $291.8 million to the latest sales. In addition, ConAgra raised its prices on its branded products to offset higher ingredient costs.
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The company recently completed its $4.75-billion acquisition of Ralcorp Holdings, the largest maker of private-label food in the U.S.
The purchase helped push up ConAgra’s sales by 13.4% in its 2013 third quarter, which ended February 24, 2013, to $3.85 billion from $3.4 billion a year earlier. Ralcorp contributed $291.8 million to the latest sales. In addition, ConAgra raised its prices on its branded products to offset higher ingredient costs.
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HEWLETT-PACKARD CO. $20 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.9 billion; Market cap: $38.0 billion; Price-to-sales ratio: 0.3; Dividend yield: 2.7%; TSINetwork Rating: Average; www.hp.com), like IBM (see left), wants to cut its reliance on selling computer hardware. However, it has faced some setbacks.
In 2011, the company considered spinning off its personal computer and printer operations, which together account for 50% of its revenue. It eventually decided to hang onto these businesses and make them more profitable instead.
Hewlett also wants to expand its software division, which supplies just 3% of its revenue. That’s why it paid $11.0 billion for U.K.-based Autonomy in October 2011. This company’s software helps businesses organize information in different formats, including email and web pages.
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In 2011, the company considered spinning off its personal computer and printer operations, which together account for 50% of its revenue. It eventually decided to hang onto these businesses and make them more profitable instead.
Hewlett also wants to expand its software division, which supplies just 3% of its revenue. That’s why it paid $11.0 billion for U.K.-based Autonomy in October 2011. This company’s software helps businesses organize information in different formats, including email and web pages.
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INTERNATIONAL BUSINESS MACHINES CORP. $192 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $211.2 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.ibm.com) started up in 1911, which makes it the world’s oldest computer company. Today, it operates in over 170 countries.
IBM continues to shift out of less profitable businesses, like making personal computers, and toward more promising activities, such as designing computer systems and managing them for clients. Long-term maintenance contracts give IBM more dependable revenue streams; services now supply 56% of its sales.
The company is also expanding its software business. It’s particularly interested in developing analytics software, which helps businesses and governments gather and analyze a wide variety of data. For example, IBM’s Smarter Planet initiative combines advanced hardware and software to help clients solve complex problems, such as traffic congestion. Software supplies 24% of IBM’s revenue.
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IBM continues to shift out of less profitable businesses, like making personal computers, and toward more promising activities, such as designing computer systems and managing them for clients. Long-term maintenance contracts give IBM more dependable revenue streams; services now supply 56% of its sales.
The company is also expanding its software business. It’s particularly interested in developing analytics software, which helps businesses and governments gather and analyze a wide variety of data. For example, IBM’s Smarter Planet initiative combines advanced hardware and software to help clients solve complex problems, such as traffic congestion. Software supplies 24% of IBM’s revenue.
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GOODYEAR TIRE & RUBBER CO. $12.02 (Nasdaq symbol GT; TSINetwork Rating: Extra Risk) (330-796-2122; www.goodyear.com; Shares outstanding: 245.5 million; Market cap: $3.0 billion; No dividends paid) is the world’s largest tire maker, with 52 plants in 22 countries.
In the quarter ended December 31, 2012, the weak global economy lowered Goodyear’s sales by 11.2%, to $5.05 billion from $5.68 billion a year earlier.
North American sales fell 10.4%, to $2.31 billion from $2.58 billion. As well, sales declined by 9.2% in Latin America; 16.2% in Europe, the Middle East and Africa; and 0.5% in Asia. Unfavourable foreign currency moves also lowered Goodyear’s revenue.
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In the quarter ended December 31, 2012, the weak global economy lowered Goodyear’s sales by 11.2%, to $5.05 billion from $5.68 billion a year earlier.
North American sales fell 10.4%, to $2.31 billion from $2.58 billion. As well, sales declined by 9.2% in Latin America; 16.2% in Europe, the Middle East and Africa; and 0.5% in Asia. Unfavourable foreign currency moves also lowered Goodyear’s revenue.
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CARFINCO FINANCIAL GROUP $9.32 (Toronto symbol CFN; TSINetwork Rating: Speculative) (1-888-486-4356; www.carfinco.com; Shares outstanding: 24.6 million; Market cap: $229.3 million; Dividend yield: 5.2%) provides car loans to consumers who don’t meet the criteria of traditional lenders, like banks.
In the three months ended December 31, 2012, Carfinco’s revenue rose 16.1%, to $19.2 million from $16.5 million a year earlier. The company loaned $40.1 million in the quarter, up 24.4% from $32.2 million.
Earnings rose 13.6%, to $5.0 million, or $0.21 a share, from $4.4 million, or $0.18 a share.
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In the three months ended December 31, 2012, Carfinco’s revenue rose 16.1%, to $19.2 million from $16.5 million a year earlier. The company loaned $40.1 million in the quarter, up 24.4% from $32.2 million.
Earnings rose 13.6%, to $5.0 million, or $0.21 a share, from $4.4 million, or $0.18 a share.
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ZARGON OIL & GAS $6.44 (Toronto symbol ZAR; TSINetwork Rating: Speculative) (403-264-9992; www.zargon.ca; Shares outstanding: 29.9 million; Market cap: $192.6 million; Dividend yield: 11.2%) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. The company’s output is 67% oil and 33% natural gas.
In the three months ended December 31, 2012, Zargon produced 7,720 barrels of oil equivalent per day, down 17.0% from 9,278 barrels a year earlier. That’s because the company sold some less important properties and cut back on natural gas drilling in light of low gas prices. The production drop pushed down Zargon’s cash flow per share by 5.2%, to $0.55 from $0.58 a year earlier.
The company expects cash flow of $1.89 a share in 2013. It trades at 3.4 times that estimate.
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In the three months ended December 31, 2012, Zargon produced 7,720 barrels of oil equivalent per day, down 17.0% from 9,278 barrels a year earlier. That’s because the company sold some less important properties and cut back on natural gas drilling in light of low gas prices. The production drop pushed down Zargon’s cash flow per share by 5.2%, to $0.55 from $0.58 a year earlier.
The company expects cash flow of $1.89 a share in 2013. It trades at 3.4 times that estimate.
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