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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MOTOROLA SOLUTIONS INC. $61 (New York symbol MSI; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 276.0 million; Market cap: $16.8 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.7%; TSINetwork Rating: Average; www.motorolasolutions.com) makes specialized electronic equipment, such as bar-code scanners and radios for police and fire vehicles. It gets 69% of its revenue by selling its products to governments; the U.S. government is the company’s largest single customer, accounting for 7% of its overall revenue. Businesses supply the remaining 31% of Motorola Solutions’revenue.
The company took its current form on January 4, 2011. That’s when Motorola Inc. spun off of its struggling cellphone business, Motorola Mobility, as a separate company. Following the transaction, the remaining operations became Motorola Solutions.
The company took its current form on January 4, 2011. That’s when Motorola Inc. spun off of its struggling cellphone business, Motorola Mobility, as a separate company. Following the transaction, the remaining operations became Motorola Solutions.
Big gains as a stand-alone company
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CAMPBELL SOUP CO. $40 (New York symbol CPB; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 314.4 million; Market cap: $12.6 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.campbellsoupcompany. com) aims to increase its Mexican sales through new alliances with two of that country’s leading food makers. As a result, Campbell will close its plant in Mexico. It expects to pay $6 million in severance and other costs.
Meanwhile, Campbell earned $220 million in the three months ended January 27, 2013. That’s up 6.3% from $207 million a year earlier. Earnings per share rose 9.4%, to $0.70 from $0.64, on fewer shares outstanding. Sales rose 10.5%, to $2.3 billion from $2.1 billion, mainly due to a recent acquisition.
Campbell Soup is a buy.
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Meanwhile, Campbell earned $220 million in the three months ended January 27, 2013. That’s up 6.3% from $207 million a year earlier. Earnings per share rose 9.4%, to $0.70 from $0.64, on fewer shares outstanding. Sales rose 10.5%, to $2.3 billion from $2.1 billion, mainly due to a recent acquisition.
Campbell Soup is a buy.
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SHERWIN-WILLIAMS CO. $159 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 103.1 million; Market cap: $16.4 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.3%; TSINetwork Rating: Above Average; www.sherwin-williams.com) has raised its quarterly dividend by 28.2%, to $0.50 a share from $0.39. The new annual rate of $2.00 yields 1.3%. Sherwin has now raised its dividend for 34 consecutive years.
The company recently agreed to buy privately held Consorcio Comex, Mexico’s largest paint and coating maker. Comex sells its products through 3,300 stores in Mexico, 240 in the U.S. and 78 in Canada.
Sherwin will pay $2.3 billion, including assumed debt, when the sale closes later this year. Expanding by acquisition, particularly in foreign countries, adds risk. The stock is also expensive at 20.7 times Sherwin’s likely 2013 earnings of $7.68 a share.
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The company recently agreed to buy privately held Consorcio Comex, Mexico’s largest paint and coating maker. Comex sells its products through 3,300 stores in Mexico, 240 in the U.S. and 78 in Canada.
Sherwin will pay $2.3 billion, including assumed debt, when the sale closes later this year. Expanding by acquisition, particularly in foreign countries, adds risk. The stock is also expensive at 20.7 times Sherwin’s likely 2013 earnings of $7.68 a share.
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TERADATA CORP. $62 (New York symbol TDC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 169.1 million; Market cap: $10.5 billion; Priceto- sales ratio: 4.0; No dividends paid; TSINetwork Rating: Average; www.teradata.com) earned $2.85 a share in 2012. That’s up 22.8% from $2.32 in 2011. Revenue rose 12.8%, to $2.7 billion from $2.4 billion.
However, Teradata expects its revenue to rise by just 6% to 10% in 2013. That’s because the uncertain economy is hurting demand for its analytics services, which help businesses gather and analyze large amounts of data, including customer purchasing patterns. The stock is down 23.5% from its peak of $81 in September 2012. Even so, it trades at a high 19.9 times the company’s likely 2013 earnings of $3.12 a share.
Teradata is a hold.
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However, Teradata expects its revenue to rise by just 6% to 10% in 2013. That’s because the uncertain economy is hurting demand for its analytics services, which help businesses gather and analyze large amounts of data, including customer purchasing patterns. The stock is down 23.5% from its peak of $81 in September 2012. Even so, it trades at a high 19.9 times the company’s likely 2013 earnings of $3.12 a share.
Teradata is a hold.
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INTERNATIONAL FLAVORS & FRAGRANCES INC. $72 (New York symbol IFF; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $5.9 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.9%; TSINetwork Rating: Above Average; www.iff.com) produces compounds that improve the taste of food and make consumer products smell better.
In 2012, IFF’s sales rose 1.2%, to $2.82 billion from $2.79 billion in 2011. The company gets 75% of its sales from outside the U.S., and the high U.S. dollar is hurting the contribution of these businesses. Without the negative impact of currency exchange rates, sales would have risen 4%. Earnings per share rose 6.4%, to $3.98 from $3.74.
The company continues to expand in fast-growing markets like China, India and Turkey. These investments should push up its earnings to $4.40 a share in 2013, and the stock trades at 16.4 times that estimate. The $1.36 dividend yields 1.9%.
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In 2012, IFF’s sales rose 1.2%, to $2.82 billion from $2.79 billion in 2011. The company gets 75% of its sales from outside the U.S., and the high U.S. dollar is hurting the contribution of these businesses. Without the negative impact of currency exchange rates, sales would have risen 4%. Earnings per share rose 6.4%, to $3.98 from $3.74.
The company continues to expand in fast-growing markets like China, India and Turkey. These investments should push up its earnings to $4.40 a share in 2013, and the stock trades at 16.4 times that estimate. The $1.36 dividend yields 1.9%.
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GOOGLE INC. $792 (Nasdaq symbol GOOG; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 329.7 million; Market cap: $261.1 billion; Price-to-sales ratio: 5.3; No dividends paid; TSINetwork Rating: Above Average; www.google- .com) is thinking about opening its own chain of retail stores in the U.S. These outlets would sell mobile phones and tablet computers powered by the company’s Android operating system, as well as lesser-known products like Chromebook laptop computers, which run on Google’s Chrome operating system.
The company could also use these stores to promote unusual new products it is developing, such as eyeglasses with embedded computer displays.
Google is a buy.
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The company could also use these stores to promote unusual new products it is developing, such as eyeglasses with embedded computer displays.
Google is a buy.
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SYMANTEC CORP. $23 (Nasdaq symbol SYMC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 689.2 million; Market cap: $15.9 billion; Price-to-sales ratio: 2.3; No dividends paid; TSINetwork Rating: Average; www.symantec.com) reported that its sales rose 4.4% in its fiscal 2013 third quarter, which ended December 28, 2012, to a record $1.8 billion from $1.7 billion a year earlier. That’s mainly because businesses are buying more data-security and storage services.
However, rising labour and other costs caused the company’s earnings to fall 0.3%, to $313 million from $314 million. Symantec spent $200 million on share repurchases in the latest quarter. Due to fewer shares outstanding, earnings per share rose 7.1%, to $0.45 from $0.42. The company spends around 14% of its revenue on research.
Symantec now aims to improve its profitability by streamlining its product lines and marketing. As a result, it will cut 5% of its workforce. The company expects to pay $275 million in severance and other costs in fiscal 2014. Symantec did not say how much these moves would save it, but they should help it reach its profit margin (operating income divided by revenue) target of at least 30.0%. The company’s profit margin was 25.6% in the latest quarter.
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However, rising labour and other costs caused the company’s earnings to fall 0.3%, to $313 million from $314 million. Symantec spent $200 million on share repurchases in the latest quarter. Due to fewer shares outstanding, earnings per share rose 7.1%, to $0.45 from $0.42. The company spends around 14% of its revenue on research.
Symantec now aims to improve its profitability by streamlining its product lines and marketing. As a result, it will cut 5% of its workforce. The company expects to pay $275 million in severance and other costs in fiscal 2014. Symantec did not say how much these moves would save it, but they should help it reach its profit margin (operating income divided by revenue) target of at least 30.0%. The company’s profit margin was 25.6% in the latest quarter.
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ADOBE SYSTEMS INC. $39 (Nasdaq symbol ADBE; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 498.8 million; Market cap: $19.5 billion; Price-to-sales ratio: 4.4; No dividends paid since June 2005; TSINetwork Rating: Average; www.adobe.com) earned $307.9 million in the fourth quarter of its 2012 fiscal year, which ended November 30, 2012. That’s down 7.4% from $332.6 million a year earlier. Earnings per share fell 9.0%, to $0.61 from $0.67, on more shares outstanding. Revenue was flat at $1.15 billion. Adobe continues to spend a high 17% of its revenue on research.
Adobe is doing a good job of selling its Creative Cloud package of photo-editing and desktop-publishing programs as a subscription service instead of a one-time purchase. It sold 10,000 Creative Cloud subscriptions a week in the fourth quarter, up from 8,000 in the third quarter. As a result, subscription revenue jumped 51.5% from a year earlier and now accounts for 17% of Adobe’s total revenue. The company still gets 74% of its revenue from direct sales of software. Services and support supply the remaining 9%.
Moving to a subscription model will slow Adobe’s short-term revenue and earnings growth, but it should give the company steadier revenue streams.
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Adobe is doing a good job of selling its Creative Cloud package of photo-editing and desktop-publishing programs as a subscription service instead of a one-time purchase. It sold 10,000 Creative Cloud subscriptions a week in the fourth quarter, up from 8,000 in the third quarter. As a result, subscription revenue jumped 51.5% from a year earlier and now accounts for 17% of Adobe’s total revenue. The company still gets 74% of its revenue from direct sales of software. Services and support supply the remaining 9%.
Moving to a subscription model will slow Adobe’s short-term revenue and earnings growth, but it should give the company steadier revenue streams.
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PROCTER & GAMBLE CO. $77 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.7 billion; Market cap: $207.9 billion; Price-to-sales ratio: 2.5; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.pg.com) is one of the world’s largest makers of household and personal-care products. Its top brands include Tide detergent, Crest toothpaste, Head & Shoulders shampoo and Pampers diapers.
The company faces rising competition from generic brands. Last year, it responded with a major restructuring plan, which mainly involves cutting 5% of its workforce and closing plants.
The company expects severance and other costs to total $3.5 billion over the next five years. However, these moves should cut its costs by $10 billion over the same period.
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The company faces rising competition from generic brands. Last year, it responded with a major restructuring plan, which mainly involves cutting 5% of its workforce and closing plants.
The company expects severance and other costs to total $3.5 billion over the next five years. However, these moves should cut its costs by $10 billion over the same period.
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MONDELEZ INTERNATIONAL INC. $27 (Nasdaq symbol MDLZ; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.8 billion; Market cap: $48.6 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.9%; TSINetwork Rating: Above Average; www.mondelezinternational.com) makes cookies and biscuits (Oreo, Chips Ahoy and Ritz); chocolate bars (Cadbury, Toblerone) and gum and candy (Trident, Chiclets and Halls cough drops).
On October 1, 2012, the old Kraft Foods broke itself into two publicly traded companies: Mondelez and Kraft Foods Group (Nasdaq symbol KRFT).
In its first quarter as a separate company, which ended December 31, 2012, Mondelez’s revenue fell 1.9%, to $9.5 billion from $9.7 billion a year earlier. If you disregard currency exchange rates and businesses the company sold, revenue would have risen 3.7%, mainly due to stronger sales in developing markets. That offset lower gum sales. Before unusual items, earnings fell 7.7%, to $0.36 a share from $0.39.
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On October 1, 2012, the old Kraft Foods broke itself into two publicly traded companies: Mondelez and Kraft Foods Group (Nasdaq symbol KRFT).
In its first quarter as a separate company, which ended December 31, 2012, Mondelez’s revenue fell 1.9%, to $9.5 billion from $9.7 billion a year earlier. If you disregard currency exchange rates and businesses the company sold, revenue would have risen 3.7%, mainly due to stronger sales in developing markets. That offset lower gum sales. Before unusual items, earnings fell 7.7%, to $0.36 a share from $0.39.
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