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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APACHE CORP. $75 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 392.0 million; Market cap: $29.4 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.1%; TSINetwork Rating: Average; www.apachecorp.com) spent $16 billion buying oil and gas properties in the past three years, which helped increase its long-term debt to $11.4 billion. It now plans to sell $2 billion of land to help pay down its debt.
Thanks to these purchases, Apache’s average daily production rose 5.4% in 2012, to 779,000 barrels (51% oil and 49% gas). That pushed up its revenue by 1.1%, to a record $16.9 billion from $16.8 billion in 2011. However, higher depletion charges (the cost of replenishing its reserves) cut earnings by 19.0%, to $3.8 billion, or $9.48 a share. In 2011, it earned $4.7 billion, or $11.83 a share.
The company’s production will likely rise 3% to 5% in 2013. The stock trades at just 8.0 times its forecast earnings of $9.39 a share.
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Thanks to these purchases, Apache’s average daily production rose 5.4% in 2012, to 779,000 barrels (51% oil and 49% gas). That pushed up its revenue by 1.1%, to a record $16.9 billion from $16.8 billion in 2011. However, higher depletion charges (the cost of replenishing its reserves) cut earnings by 19.0%, to $3.8 billion, or $9.48 a share. In 2011, it earned $4.7 billion, or $11.83 a share.
The company’s production will likely rise 3% to 5% in 2013. The stock trades at just 8.0 times its forecast earnings of $9.39 a share.
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QUAKER CHEMICAL CORP. $57 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 13.1 million; Market cap: $746.7 million; Price-to-sales ratio: 1.1; Dividend yield: 1.7%; TSINetwork Rating: Average; www.quakerchem.com) makes lubricants and chemicals that keep mechanical parts from rusting.
Quaker has bought five other companies in the past two years. Expanding by acquisition adds risk, but these were all smaller firms that added to Quaker’s technical expertise. They also expanded its overseas operations, which now supply 65% of its revenue.
For example, in July 2012, Quaker paid $2.7 million for Italy-based NP Coil Dexter Industries, which makes chemicals that carmakers and other industrial clients use to prepare metal surfaces before applying paint or other coatings. This helps paint form a stronger bond, which prevents rust. NP Coil Dexter will add $11 million to Quaker’s annual revenue.
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Quaker has bought five other companies in the past two years. Expanding by acquisition adds risk, but these were all smaller firms that added to Quaker’s technical expertise. They also expanded its overseas operations, which now supply 65% of its revenue.
For example, in July 2012, Quaker paid $2.7 million for Italy-based NP Coil Dexter Industries, which makes chemicals that carmakers and other industrial clients use to prepare metal surfaces before applying paint or other coatings. This helps paint form a stronger bond, which prevents rust. NP Coil Dexter will add $11 million to Quaker’s annual revenue.
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MTS SYSTEMS CORP. $54 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.7 million; Market cap: $847.8 million; Priceto- sales ratio: 1.6; Dividend yield: 2.2%; TSINetwork Rating: Average; www.mts.com) makes equipment and software that manufacturers use to test the behaviour of materials, machines and structures. This helps them reduce errors and costs.
The stock has moved up from $37 in June 2012. That’s mainly because rising car sales have prompted automakers to spend more on testing systems. Increasingly strict car emission and safety regulations are also fuelling MTS’s sales.
In its fiscal 2013 first quarter, which ended December 29, 2012, MTS’s revenue rose 6.7%, to $142.7 million from $133.7 million a year earlier.
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The stock has moved up from $37 in June 2012. That’s mainly because rising car sales have prompted automakers to spend more on testing systems. Increasingly strict car emission and safety regulations are also fuelling MTS’s sales.
In its fiscal 2013 first quarter, which ended December 29, 2012, MTS’s revenue rose 6.7%, to $142.7 million from $133.7 million a year earlier.
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TENNANT CORP. $47 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.5 million; Market cap: $869.5 million; Price-to-sales ratio: 1.2; Dividend yield: 1.5%; 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 develop floor cleaners and related products that use its ec-H2O technology, which uses electricity to make tap water act like a detergent. That eliminates the need for soaps and cleaning agents, and lowers the machine’s operating costs.
Even so, Tennant’s sales fell 2.0% in 2012, to $739.0 million from $754.0 million in 2011. Overseas markets supply around 35% of Tennant’s sales, and the high U.S. dollar hurts the contribution of its foreign operations. On a constant-currency basis, sales were flat. The company sold $141 million worth of ec-H20 scrubbers in 2012 (or 19.1% of total sales). That’s up 0.7% from $140 million (18.6% of sales) in 2011.
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The company continues to develop floor cleaners and related products that use its ec-H2O technology, which uses electricity to make tap water act like a detergent. That eliminates the need for soaps and cleaning agents, and lowers the machine’s operating costs.
Even so, Tennant’s sales fell 2.0% in 2012, to $739.0 million from $754.0 million in 2011. Overseas markets supply around 35% of Tennant’s sales, and the high U.S. dollar hurts the contribution of its foreign operations. On a constant-currency basis, sales were flat. The company sold $141 million worth of ec-H20 scrubbers in 2012 (or 19.1% of total sales). That’s up 0.7% from $140 million (18.6% of sales) in 2011.
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YUM! BRANDS INC. $65 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 451.0 million; Market cap: $29.3 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.yum- .com) was the first fast-food chain to enter China, in 1987. Its 5,726 restaurants in China, including its KFC and Pizza Hut chains, now supply 50% of its sales and 45% of its earnings.
The company’s huge success in China is the main reason why the stock has jumped 448% in the past 10 years. However, recent allegations that Yum’s KFC outlets in that country bought raw chicken with higherthan- permitted levels of antibiotics have hurt its Chinese sales.
Following an investigation, Chinese regulators did not charge the company with violating food-safety standards.
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The company’s huge success in China is the main reason why the stock has jumped 448% in the past 10 years. However, recent allegations that Yum’s KFC outlets in that country bought raw chicken with higherthan- permitted levels of antibiotics have hurt its Chinese sales.
Following an investigation, Chinese regulators did not charge the company with violating food-safety standards.
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MCDONALD’S CORP. $94 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.0 billion; Market cap: $94.0 billion; Price-to-sales ratio: 3.4; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.mcdonalds.com) operated 34,480 fast food restaurants in 119 countries at the end of 2012. These outlets serve a wide variety of foods, including items tailored to local tastes, but they are best known for their hamburgers and french fries.
The company’s biggest market is now Europe, which provides 39% of its revenue and 37% of its earnings. McDonald’s other main markets are the U.S. (32% of revenue and 44% of earnings); Asia- Pacific (23%, 18%); and other countries, mainly Canada and Latin America (6%, 1%).
McDonald’s growing international operations increase its exposure to foreign exchange rates, which at times can fluctuate wildly. Unfavourable currency rates cut its revenue by 3.3%, from $23.5 billion in 2008 to $22.7 billion in 2009. However, revenue rebounded and rose 21.2%, to $27.6 billion, in 2012.
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The company’s biggest market is now Europe, which provides 39% of its revenue and 37% of its earnings. McDonald’s other main markets are the U.S. (32% of revenue and 44% of earnings); Asia- Pacific (23%, 18%); and other countries, mainly Canada and Latin America (6%, 1%).
McDonald’s growing international operations increase its exposure to foreign exchange rates, which at times can fluctuate wildly. Unfavourable currency rates cut its revenue by 3.3%, from $23.5 billion in 2008 to $22.7 billion in 2009. However, revenue rebounded and rose 21.2%, to $27.6 billion, in 2012.
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GENUINE PARTS CO. $69 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing sector; Shares outstanding: 155.1 million; Market cap: $10.7 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.1%; TSINetwork Rating: Average; www.genpt.com) gets 49% of its sales and 50% of its earnings by selling auto parts. The company operates 1,300 of its own outlets under the NAPA banner, and its distribution business serves 4,750 independent stores across North America.
Genuine also distributes industrial parts (34% of sales, 33% of earnings), office furniture (13%, 12%) and electrical equipment (4%, 5%).
The company’s sales rose 4.5% in 2012, to $13.0 billion from $12.5 billion in 2011. Sales of auto parts rose 4%, partly due to an acquisition, while sales at the industrial products division gained 7%. Electrical equipment sales rose 5%. Sales of office products were flat.
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Genuine also distributes industrial parts (34% of sales, 33% of earnings), office furniture (13%, 12%) and electrical equipment (4%, 5%).
The company’s sales rose 4.5% in 2012, to $13.0 billion from $12.5 billion in 2011. Sales of auto parts rose 4%, partly due to an acquisition, while sales at the industrial products division gained 7%. Electrical equipment sales rose 5%. Sales of office products were flat.
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Hidden value is a key factor we look for in our stock recommendations. A good example of an underappreciated asset is a company’s brand name. Balance sheets often fail to assign any value to brands, even household names that have built up multitudes of loyal customers over the years. The strength of the brands of certain companies can help them expand beyond Canada. That’s where one of Canada’s best-known tech stocks, now under a new name, aims to grow.
BLACKBERRY (Toronto symbol BB; www.blackberry.com) is the new name of Research in Motion Ltd. (old symbol RIM). (Note: The company’s legal name will remain Research in Motion until shareholders approve the name change at the next annual meeting.)...
BLACKBERRY (Toronto symbol BB; www.blackberry.com) is the new name of Research in Motion Ltd. (old symbol RIM). (Note: The company’s legal name will remain Research in Motion until shareholders approve the name change at the next annual meeting.)...
TEMPUR-PEDIC $39.70 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempurpedic.com; Shares outstanding: 59.6 million; Market cap: $2.4 billion; No dividends paid) makes and distributes Swedish mattresses and neck pillows made from its proprietary Tempur material, which conforms to the body to provide support and help alleviate pressure points.
The stock is down 54.6% since it hit an all-time high of $87.43 in April 2012. However, it is still up 91.8% from the low of $20.70 that it dropped to in June 2012.
The stock is down 54.6% since it hit an all-time high of $87.43 in April 2012. However, it is still up 91.8% from the low of $20.70 that it dropped to in June 2012.
Competitors move into memory foam
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INTUITIVE SURGICAL $574 (Nasdaq symbol ISRG; TSINetwork Rating: Average) (515-507-5000; www.intuitivesurgical.com; Shares outstanding: 39.8 million; Market cap: $22.8 billion; No dividends paid) makes the da Vinci, a computerized surgical system.
Guided by a miniature camera connected to a 3-D monitor, surgeons use the da Vinci to operate by remotely manipulating tiny robotic arms. This process is safer and much less invasive than regular surgery and helps cut a patient’s recovery time and post-operative discomfort. It also reduces scarring and infection risk.
In the three months ended December 31, 2012, Intuitive earned $174.9 million, or $4.37 a share. That’s up 15.7% from $151.2 million, or $3.86 a share, a year earlier. Revenue rose 22.6%, to $609.3 million from $496.8 million. Intuitive is debt-free and holds cash of $2.9 billion, or $72.86 a share.
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Guided by a miniature camera connected to a 3-D monitor, surgeons use the da Vinci to operate by remotely manipulating tiny robotic arms. This process is safer and much less invasive than regular surgery and helps cut a patient’s recovery time and post-operative discomfort. It also reduces scarring and infection risk.
In the three months ended December 31, 2012, Intuitive earned $174.9 million, or $4.37 a share. That’s up 15.7% from $151.2 million, or $3.86 a share, a year earlier. Revenue rose 22.6%, to $609.3 million from $496.8 million. Intuitive is debt-free and holds cash of $2.9 billion, or $72.86 a share.
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