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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Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for the Inner Circle. This week, we received a question from an Inner Circle member on an Italian eyewear company whose products range from popular brands like LensCrafters to luxury names like Prada. The company, which trades as an ADR, makes the majority of its sales in North America, and Pat looks at its prospects for growth in an uncertain global economy....
Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for the Inner Circle. This week, an Inner Circle member asked about the world’s biggest generic drug maker. This Israeli-based firm, which trades as an ADR, has grown steadily by acquisition. Pat examines the prospects for growth as an aging population demands more drugs, but he also looks at the challenges of increased competition and government regulation....
BAXTER INTERNATIONAL INC. $66 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 549.4 million; Market cap: $36.3 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.7%; TSINetwork Rating: Average; www.baxter.com) makes medical products, such as intravenous pumps and kidney dialysis equipment. It also makes vaccines and drugs. Half of its sales come from single-use products that need to be continually reordered.
Demand for the company’s products continues to improve, particularly as an aging population needs more medical devices and drugs. Baxter’s sales rose 23.4%, from $11.3 billion in 2007 to $13.9 billion in 2011.
Earnings rose 36.1%, from $1.8 billion in 2007 to $2.5 billion in 2011. The company is an aggressive buyer of its own shares. Because of a 10% drop in the number of shares outstanding, earnings per share jumped 54.5%, from $2.79 to $4.31.
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Demand for the company’s products continues to improve, particularly as an aging population needs more medical devices and drugs. Baxter’s sales rose 23.4%, from $11.3 billion in 2007 to $13.9 billion in 2011.
Earnings rose 36.1%, from $1.8 billion in 2007 to $2.5 billion in 2011. The company is an aggressive buyer of its own shares. Because of a 10% drop in the number of shares outstanding, earnings per share jumped 54.5%, from $2.79 to $4.31.
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SONY CORP. ADRs $10 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $10.0 billion; Price-to-sales ratio: 0.1; Dividend yield: 3.1%; TSINetwork Rating: Average; www.sony.com) has agreed to buy 11% of distressed Japanese camera maker Olympus for $640 million. In addition, the companies will work together on new medical-imaging equipment that includes Sony’s TV technologies. They will also share digital camera technology. Sony feels this investment will help cut its reliance on its struggling TV set business.
To pay for this purchase, Sony is selling $1.9 billion of convertible bonds due in 2017. That will increase its long-term debt to $13.1 billion, or a high 1.3 times its market cap. As well, if all bondholders convert, the number of shares outstanding would rise by 15.6%. That would dilute the holdings of current shareholders.
Sony is still a hold.
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To pay for this purchase, Sony is selling $1.9 billion of convertible bonds due in 2017. That will increase its long-term debt to $13.1 billion, or a high 1.3 times its market cap. As well, if all bondholders convert, the number of shares outstanding would rise by 15.6%. That would dilute the holdings of current shareholders.
Sony is still a hold.
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TEXAS INSTRUMENTS INC. $29 (Nasdaq symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $31.9 billion; Price-to-sales ratio: 2.5; Dividend yield: 2.9%; TSINetwork Rating: Average; www.ti.com) is selling fewer chips to smartphone makers. That’s because these customers are making more of their own chips instead of buying them from outside suppliers.
In response, Texas Instruments is shifting its focus to chips for cars, industrial machinery and other products. As a result, it will cut 5% of its workforce. The company will pay $325 million in severance and other costs. However, these moves should save it $450 million a year by the end of 2013. That’s equal to 57% of the $784 million, or $0.67 a share, that the company earned in the third quarter of 2012.
Texas Instruments is a buy.
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In response, Texas Instruments is shifting its focus to chips for cars, industrial machinery and other products. As a result, it will cut 5% of its workforce. The company will pay $325 million in severance and other costs. However, these moves should save it $450 million a year by the end of 2013. That’s equal to 57% of the $784 million, or $0.67 a share, that the company earned in the third quarter of 2012.
Texas Instruments is a buy.
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PETSMART INC. $69 (Nasdaq symbol PETM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 108.2 million; Market cap: $7.5 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.0%; TSINetwork Rating: Above Average; www.petm.com) operates 1,269 pet stores in the U.S. and Canada. It also has 195 in-store PetsHotels, which look after pets while their owners are away.
In the third quarter of its 2013 fiscal year, which ended October 28, 2012, PetSmart’s earnings jumped 46.6%, to $82.3 million from $56.2 million a year earlier. The company bought back $60 million of its shares during the quarter. Due to fewer shares outstanding, earnings per share rose 50.0%, to $0.75 from $0.50.
Sales rose 8.8%, to $1.6 billion from $1.5 billion. Same-store sales rose 6.5%, while sales of pet services, such as grooming, rose 8.5%. Services accounted for 10.7% of PetSmart’s total sales.
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In the third quarter of its 2013 fiscal year, which ended October 28, 2012, PetSmart’s earnings jumped 46.6%, to $82.3 million from $56.2 million a year earlier. The company bought back $60 million of its shares during the quarter. Due to fewer shares outstanding, earnings per share rose 50.0%, to $0.75 from $0.50.
Sales rose 8.8%, to $1.6 billion from $1.5 billion. Same-store sales rose 6.5%, while sales of pet services, such as grooming, rose 8.5%. Services accounted for 10.7% of PetSmart’s total sales.
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ALCOA INC. $8.27 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.1 billion; Market cap: $9.1 billion; Price-to-sales ratio: 0.4; Dividend yield: 1.5%; TSINetwork Rating: Average; www.alcoa.com) has completed the sale of its Tapoco hydroelectric dams in Tennessee and North Carolina. These facilities supply power to Alcoa’s nearby aluminum smelter. The company recently shut down parts of the smelter, so it no longer needs this power.
Alcoa received $600 million, or 7% of its market cap, for the Tapoco assets. The company did not say what it would do with the cash, but it could use it to pay down its long-term debt of $8.4 billion.
Alcoa is a buy.
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Alcoa received $600 million, or 7% of its market cap, for the Tapoco assets. The company did not say what it would do with the cash, but it could use it to pay down its long-term debt of $8.4 billion.
Alcoa is a buy.
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NCR CORP. $24 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 159.9 million; Market cap: $3.8 billion; Price-to-sales ratio: 0.6; No dividends paid; TSINetwork Rating: Average; www.ncr.com) has won a contract to install 10,000 of its self-checkout systems at more than 1,200 Wal-Mart stores in the U.S. These devices let shoppers pay for their purchases without a cashier. That cuts the retailer’s labour costs, speeds up checkout times and encourages repeat visits.
The company did not say how much this contract is worth. However, Wal-Mart’s purchase should make it easier for NCR to sell its systems to other big retailers.
NCR is a buy.
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The company did not say how much this contract is worth. However, Wal-Mart’s purchase should make it easier for NCR to sell its systems to other big retailers.
NCR is a buy.
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ALLIANT ENERGY CORP. $44 (New York symbol LNT; Income Portfolio, Utilities sector; Shares outstanding: 111.0 million; Market cap: $4.9 billion; Price-to-sales ratio: 1.5; Dividend yield: 4.1%; TSINetwork Rating: Average; www.alliantenergy.com) sells electricity and natural gas to 1.4 million residential and business customers in Wisconsin, Iowa and Minnesota.
The company recently agreed to buy a gas-fired power plant in Wisconsin for $392 million. Alliant currently buys power from this plant under a long-term contract. Owning this plant will make it easier for Alliant to lower its operating costs. The deal should close by the end of 2012.
Meanwhile, Alliant earned $149.0 million, or $1.34 a share, in the third quarter of 2012. That’s up 7.2% from $139.0 million, or $1.25 a share, a year earlier. Revenue rose 1.9%, to $887.6 million from $870.9 million. That’s mainly because warmer-than-usual summer weather prompted consumers to use more power for air conditioning.
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The company recently agreed to buy a gas-fired power plant in Wisconsin for $392 million. Alliant currently buys power from this plant under a long-term contract. Owning this plant will make it easier for Alliant to lower its operating costs. The deal should close by the end of 2012.
Meanwhile, Alliant earned $149.0 million, or $1.34 a share, in the third quarter of 2012. That’s up 7.2% from $139.0 million, or $1.25 a share, a year earlier. Revenue rose 1.9%, to $887.6 million from $870.9 million. That’s mainly because warmer-than-usual summer weather prompted consumers to use more power for air conditioning.
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AMEREN CORP. $29 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 242.6 million; Market cap: $7.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 5.5%; TSINetwork Rating: Average; www.ameren.com) sells power and natural gas to 3.3 million clients in Illinois and Missouri.
In the three months ended September 30, 2012, Ameren’s earnings fell 15.2%, to $323 million, or $1.33 a share. A year earlier, it earned $381 million, or $1.57 a share. These figures exclude unusual items, such as a writedown of a coal-fired power plant.
Revenue fell 11.8%, to $2.0 billion from $2.3 billion. Electricity sales (which accounted for 94% of Ameren’s revenue) fell 12.5% as the weak economy hurt power demand and prices at its non-regulated plants. Gas sales (6% of revenue) were flat.
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In the three months ended September 30, 2012, Ameren’s earnings fell 15.2%, to $323 million, or $1.33 a share. A year earlier, it earned $381 million, or $1.57 a share. These figures exclude unusual items, such as a writedown of a coal-fired power plant.
Revenue fell 11.8%, to $2.0 billion from $2.3 billion. Electricity sales (which accounted for 94% of Ameren’s revenue) fell 12.5% as the weak economy hurt power demand and prices at its non-regulated plants. Gas sales (6% of revenue) were flat.
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