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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C.R. BARD INC. $102 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 82.3 million; Market cap: $8.4 billion; Price-to-sales ratio: 2.8; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www. crbard.com) sued W.L. Gore & Associates Inc., the maker of Gore-Tex fabrics, for violating its patents in 2007.
Bard and Gore both make medical stents using a Teflon-like material called ePTFE. Lower courts have previously ruled that Bard held the rights to ePTFE. However, Gore continued to make its products using this substance.
In 2009, an Arizona court ordered Gore to pay Bard $185 million. With interest, royalties and fees, that award is now worth over $900 million, or 11% of Bard’s market cap. The U.S. Supreme Court has refused to hear Gore’s appeal. That increases the likelihood that Bard will receive at least part of this award.
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Bard and Gore both make medical stents using a Teflon-like material called ePTFE. Lower courts have previously ruled that Bard held the rights to ePTFE. However, Gore continued to make its products using this substance.
In 2009, an Arizona court ordered Gore to pay Bard $185 million. With interest, royalties and fees, that award is now worth over $900 million, or 11% of Bard’s market cap. The U.S. Supreme Court has refused to hear Gore’s appeal. That increases the likelihood that Bard will receive at least part of this award.
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MOODY’S CORP. $54 (New York symbol MCO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 222.9 million; Market cap: $12.0 billion; Price-to-sales ratio: 4.7; Dividend yield: 1.5%; TSINetwork Rating: Average; www.moodys.com) has raised its quarterly dividend by 25.0%, to $0.20 a share from $0.16. The new annual rate of $0.80 yields 1.5%.
New regulations could force Moody’s to change the way it rates bonds and other securities. That could increase the company’s costs. However, the new rules would also apply to its competitors.
Moody’s should earn $3.25 a share in 2013, up from its likely 2012 earnings of $2.99. The stock trades at 16.6 times this year’s estimate.
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New regulations could force Moody’s to change the way it rates bonds and other securities. That could increase the company’s costs. However, the new rules would also apply to its competitors.
Moody’s should earn $3.25 a share in 2013, up from its likely 2012 earnings of $2.99. The stock trades at 16.6 times this year’s estimate.
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FRONTIER COMMUNICATIONS CORP. $4.55 (Nasdaq symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 998.4 million; Market cap: $4.5 billion; Price-to-sales ratio: 0.9; Dividend yield: 8.8%; TSINetwork Rating: Average; www.frontier.com) sells phone, Internet and video services to 4.9 million customers in 27 states.
In July 2010, the company purchased Verizon’s telephone businesses in 14 states. In return, Verizon shareholders received 0.24 shares of Frontier for each Verizon share they held.
In the quarter ended September 30, 2012, Frontier’s earnings jumped 228.5% to $67.0 million, or $0.07 a share. A year earlier, it earned $20.4 million, or $0.02 a share. Even if you disregard unusual items, earnings per share would have risen 40.0%. That’s partly because Frontier is selling more Internet and video services. However, it continues to lose traditional phone customers to wireless providers. That’s why its revenue fell 3.0%, to $1.25 billion from $1.3 billion.
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In July 2010, the company purchased Verizon’s telephone businesses in 14 states. In return, Verizon shareholders received 0.24 shares of Frontier for each Verizon share they held.
In the quarter ended September 30, 2012, Frontier’s earnings jumped 228.5% to $67.0 million, or $0.07 a share. A year earlier, it earned $20.4 million, or $0.02 a share. Even if you disregard unusual items, earnings per share would have risen 40.0%. That’s partly because Frontier is selling more Internet and video services. However, it continues to lose traditional phone customers to wireless providers. That’s why its revenue fell 3.0%, to $1.25 billion from $1.3 billion.
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WINDSTREAM CORP. $9.69 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 588.1 million; Market cap: $5.7 billion; Price-to-sales ratio: 1.0; Dividend yield: 10.3%; TSINetwork Rating: Average; www.windstream.com) provides telephone and other communication services to 4.2 million clients, mainly in rural areas.
In 2006, Alltel merged its telephone business with Valor Communications, which then changed its name to Windstream. Alltel investors received 1.0339267 Windstream shares for each share they held.
In November 2011, Windstream acquired PAETEC Holding Corp., which sells telecommunication services to businesses in 46 states. Windstream issued $842 million in stock to PAETEC shareholders. It also assumed $1.6 billion of PAETEC’s debt.
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In 2006, Alltel merged its telephone business with Valor Communications, which then changed its name to Windstream. Alltel investors received 1.0339267 Windstream shares for each share they held.
In November 2011, Windstream acquired PAETEC Holding Corp., which sells telecommunication services to businesses in 46 states. Windstream issued $842 million in stock to PAETEC shareholders. It also assumed $1.6 billion of PAETEC’s debt.
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ARCHER DANIELS MIDLAND CO. $29 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 658.6 million; Market cap: $19.1 billion; Price-to-sales ratio: 0.2; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.adm.com) processes corn, wheat, soybeans, canola, flax seed, peanuts, cocoa and other crops into a variety of food ingredients, such as flour, oils and sweeteners. It is also the largest maker of ethanol from corn in the U.S.
In its fiscal 2013 first quarter, which ended September 30, 2012, the company earned $182 million, or $0.28 a share. That’s down 60.4% from $460 million, or $0.68 a share, a year earlier. Lower profits from its ethanol business offset higher earnings from its oilseeds operations. Revenue fell 0.4%, to $21.8 billion from $21.9 billion.
The latest earnings included a $146-million writedown of its investment in a Mexican maker of corn flour and tortillas. Without this charge and other unusual items, the company would have earned $0.50 a share in the latest quarter, down 13.8% from $0.58 a year earlier.
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In its fiscal 2013 first quarter, which ended September 30, 2012, the company earned $182 million, or $0.28 a share. That’s down 60.4% from $460 million, or $0.68 a share, a year earlier. Lower profits from its ethanol business offset higher earnings from its oilseeds operations. Revenue fell 0.4%, to $21.8 billion from $21.9 billion.
The latest earnings included a $146-million writedown of its investment in a Mexican maker of corn flour and tortillas. Without this charge and other unusual items, the company would have earned $0.50 a share in the latest quarter, down 13.8% from $0.58 a year earlier.
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WELLS FARGO & CO. $35 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $185.5 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.5%; TSINetwork Rating: Average; www.wellsfargo.com) earned a record $18.9 billion, or $3.36 a share, in 2012. That’s up 19.1% from $15.9 billion, or $2.82 a share, in 2011.
The bank continues to do a good job of adjusting the terms of troubled loans it acquired when it bought rival banking firm Wachovia in 2008. In 2012, it set aside $7.2 billion to cover bad loans, down 8.6% from $7.9 billion in 2011.
Revenue rose 6.4%, to $86.1 billion from $80.9 billion. Low interest rates continue to encourage businesses and consumers to take out loans. The wealth management division is also attracting more clients. However, the bank is paying out higher interest rates to attract more depositors. That’s hurting its profitability.
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The bank continues to do a good job of adjusting the terms of troubled loans it acquired when it bought rival banking firm Wachovia in 2008. In 2012, it set aside $7.2 billion to cover bad loans, down 8.6% from $7.9 billion in 2011.
Revenue rose 6.4%, to $86.1 billion from $80.9 billion. Low interest rates continue to encourage businesses and consumers to take out loans. The wealth management division is also attracting more clients. However, the bank is paying out higher interest rates to attract more depositors. That’s hurting its profitability.
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EBAY INC. $53 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $68.9 billion; Priceto- sales ratio: 4.9; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) gets 53% of its revenue by charging users fees to sell goods on its shopping websites, including its main auction site, which it launched in September 1995. This site now has 112.3 million users.
eBay gets a further 40% of its revenue from processing online transactions, mostly through its wholly owned PayPal subsidiary. This business now has 122.7 million users and connects to over 15,000 financial institutions.
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eBay gets a further 40% of its revenue from processing online transactions, mostly through its wholly owned PayPal subsidiary. This business now has 122.7 million users and connects to over 15,000 financial institutions.
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AMERICAN EXPRESS CO. $59 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.1 billion; Market cap: $64.9 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.4%; TSINetwork Rating: Average; www. americanexpress.com) gets most of its revenue from the fees it charges merchants who accept its American Express charge and credit cards. Unlike Visa (see page 13), Amex is also a lender. As a result, it earns interest on its cardholders’ outstanding balances, and writes off bad loans. In addition, the company operates a travel business.
On average, the company’s cardholders spent 5.6% more in 2012 than in 2011. However, demand for Amex’s travel services is falling because businesses are conducting more meetings online.
In response to the drop in corporate travel, the company is restructuring its travel division, including cutting the number of travel agents it employs and making it easier for clients to book trips and hotels online. These moves will cut its workforce by 9% and cost $287 million (after tax).
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On average, the company’s cardholders spent 5.6% more in 2012 than in 2011. However, demand for Amex’s travel services is falling because businesses are conducting more meetings online.
In response to the drop in corporate travel, the company is restructuring its travel division, including cutting the number of travel agents it employs and making it easier for clients to book trips and hotels online. These moves will cut its workforce by 9% and cost $287 million (after tax).
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VISA INC. $159 (New York symbol V; Conservative Growth Portfolio, Finance sector; Shares outstanding: 810.6 million; Market cap: $128.9 billion; Price-to-sales ratio: 12.4; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.visa.com) operates the world’s largest electronic payments network. The company processes credit, debit, prepaid and commercial payments under the Visa, Visa Electron, Interlink and PLUS brands.
Visa gets its revenue from fees it charges card issuers and merchants for using its network. These charges are based on payment volume, transactions processed and other factors.
Moreover, Visa is a financial intermediary, so it doesn’t lose money if cardholders fail to pay their bills. Instead, banks that issue Visa cards assume liability, set repayment terms and evaluate customer creditworthiness. That cuts Visa’s risk.
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Visa gets its revenue from fees it charges card issuers and merchants for using its network. These charges are based on payment volume, transactions processed and other factors.
Moreover, Visa is a financial intermediary, so it doesn’t lose money if cardholders fail to pay their bills. Instead, banks that issue Visa cards assume liability, set repayment terms and evaluate customer creditworthiness. That cuts Visa’s risk.
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INTERNATIONAL BUSINESS MACHINES CORP. $205 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $225.5 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.ibm- .com) has gained 6.8% since we named it last year’s top pick at $192 in our February 2012 issue.
Demand for the company’s software is rising. However, the slow global economy is hurting demand for its mainframe computers and computer services. As a result, IBM’s overall revenue fell 2.3% in 2012, to $104.5 billion from $106.9 billion in 2011.
The company earns higher profits on software and services than from selling computer hardware. That’s the main reason why its earnings rose 8.0% in 2012, to $17.6 billion from $16.3 billion. IBM spent $12.0 billion on share buybacks during the year. Due to fewer shares outstanding, earnings per share rose 13.5%, to $15.25 from $13.44.
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Demand for the company’s software is rising. However, the slow global economy is hurting demand for its mainframe computers and computer services. As a result, IBM’s overall revenue fell 2.3% in 2012, to $104.5 billion from $106.9 billion in 2011.
The company earns higher profits on software and services than from selling computer hardware. That’s the main reason why its earnings rose 8.0% in 2012, to $17.6 billion from $16.3 billion. IBM spent $12.0 billion on share buybacks during the year. Due to fewer shares outstanding, earnings per share rose 13.5%, to $15.25 from $13.44.
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