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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HONDA MOTOR CO. LTD. ADRs $33 (New York symbol HMC; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.8 billion; Market cap: $59.4 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.honda.com) is Japan’s secondlargest carmaker and the world’s biggest motorcycle manufacturer.
Like Toyota (see left), Honda’s sales are continuing to recover from the 2011 earthquake and tsunami. In its fiscal 2013 second quarter, which ended September 30, 2012, Honda sold 996,000 cars and trucks. That’s up 46.9% from 678,000 a year earlier. Motorcycle sales increased 1.8%, to 3.9 million from 3.8 million.
As a result, the company’s overall sales rose 19.0%, to $29.3 billion from $24.6 billion a year earlier. Earnings jumped 35.4%, to $1.1 billion, or $0.59 per ADR (each American Depositary Receipt represents one Honda common share). A year earlier, Honda earned $788 million, or $0.44 per ADR.
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Like Toyota (see left), Honda’s sales are continuing to recover from the 2011 earthquake and tsunami. In its fiscal 2013 second quarter, which ended September 30, 2012, Honda sold 996,000 cars and trucks. That’s up 46.9% from 678,000 a year earlier. Motorcycle sales increased 1.8%, to 3.9 million from 3.8 million.
As a result, the company’s overall sales rose 19.0%, to $29.3 billion from $24.6 billion a year earlier. Earnings jumped 35.4%, to $1.1 billion, or $0.59 per ADR (each American Depositary Receipt represents one Honda common share). A year earlier, Honda earned $788 million, or $0.44 per ADR.
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TOYOTA MOTOR CO. ADRs $84 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.7 billion; Market cap: $142.8 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.toyota.com) is the world’s largest carmaker based on sales. Japan is the company’s largest market, accounting for 28% of its revenue, followed by North America (26%), Asia (19%), Europe (9%) and the rest of the world (18%).
Toyota continues to recover from the March 2011 earthquake and tsunami, which cut its production in Japan. In its fiscal 2013 second quarter, which ended September 30, 2012, Toyota sold 2.25 million vehicles, up 24.5% from 1.8 million a year earlier.
The higher car sales pushed up Toyota’s revenue by 32.7%, to $55.2 billion from $41.6 billion a year earlier. Earnings soared 255.7%, to $2.6 billion, or $1.66 per ADR (Each American Depositary Receipt represents two Toyota common shares). A year earlier, it earned $730.9 million, or $0.47 per ADR.
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Toyota continues to recover from the March 2011 earthquake and tsunami, which cut its production in Japan. In its fiscal 2013 second quarter, which ended September 30, 2012, Toyota sold 2.25 million vehicles, up 24.5% from 1.8 million a year earlier.
The higher car sales pushed up Toyota’s revenue by 32.7%, to $55.2 billion from $41.6 billion a year earlier. Earnings soared 255.7%, to $2.6 billion, or $1.66 per ADR (Each American Depositary Receipt represents two Toyota common shares). A year earlier, it earned $730.9 million, or $0.47 per ADR.
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DUN & BRADSTREET CORP. $76 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 44.6 million; Market cap: $3.4 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.0%; TSINetwork Rating: Average; www.dnb.com) shot up to around $84 in August 2012 on speculation that the company may sell itself. However, reports that it has stopped looking for a buyer caused the stock to fall to its current price.
Meanwhile, the slow economy is hurting demand for Dun & Bradstreet’s credit reports. In the third quarter of 2012, its revenue fell 6.0%, to $413.2 million from $439.4 million a year earlier. However, savings from a cost-cutting plan pushed up its earnings by 13.4%, to $79.4 million from $70.0 million. Due to fewer shares outstanding, earnings per share rose 23.9%, to $1.76 from $1.42.
Dun & Bradstreet is still a hold.
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Meanwhile, the slow economy is hurting demand for Dun & Bradstreet’s credit reports. In the third quarter of 2012, its revenue fell 6.0%, to $413.2 million from $439.4 million a year earlier. However, savings from a cost-cutting plan pushed up its earnings by 13.4%, to $79.4 million from $70.0 million. Due to fewer shares outstanding, earnings per share rose 23.9%, to $1.76 from $1.42.
Dun & Bradstreet is still a hold.
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D.E. MASTER BLENDERS 1753 N.V. 8.88 euros (Amsterdam Exchange symbol DE; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 594.9 million; Market cap: 5.3 billion euros (1 euro = $1.28 Canadian); Price-to-sales ratio:1.9; No dividends paid; TSINetwork Rating: Average; www.demasterblenders1753.com) makes coffee and tea under a variety of brands, including Senseo, Pickwick and Douwe Egberts.
In its fiscal 2013 first quarter, which ended September 30, 2012, D.E. Master’s sales rose 1.1%, to 626 million euros from 619 million euros a year earlier. D.E. Master raised its prices to offset rising costs for coffee beans. That offset a 2.7% decline in sales volumes. The company did not report earnings.
D.E. Master recently began a restructuring that includes closing a plant in Denmark and outsourcing its accounting and other administrative functions. This should cut 55 million to 75 million euros from its annual costs by 2015.
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In its fiscal 2013 first quarter, which ended September 30, 2012, D.E. Master’s sales rose 1.1%, to 626 million euros from 619 million euros a year earlier. D.E. Master raised its prices to offset rising costs for coffee beans. That offset a 2.7% decline in sales volumes. The company did not report earnings.
D.E. Master recently began a restructuring that includes closing a plant in Denmark and outsourcing its accounting and other administrative functions. This should cut 55 million to 75 million euros from its annual costs by 2015.
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HILLSHIRE BRANDS CO. $27 (New York symbol HSH; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 122.3 million; Market cap: $3.3 billion; Price-to-sales ratio: 0.8; Dividend yield: 1.9%; TSINetwork Rating: Average; www.hillshirebrands.com) makes a variety of packaged meat products. Its main brands include Ball Park hot dogs, Jimmy Dean sausages and Hillshire Farm deli meats. Its other foods include Sara Lee frozen desserts and Chef Pierre pies.
If you disregard costs related to the breakup and other unusual items, Hillshire would have earned $62 million in its fiscal 2013 first quarter, which ended September 29, 2012. That’s up 65.9% from $38 million a year earlier. Earnings per share rose 59.4%, to $0.51 from $0.32, on more shares outstanding. Sales rose 2.0%, to $1.0 billion from $991 million.
The higher earnings are partly due to savings from plant closures and job cuts. These moves should lower its annual costs by $100 million by the end of fiscal 2015.
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If you disregard costs related to the breakup and other unusual items, Hillshire would have earned $62 million in its fiscal 2013 first quarter, which ended September 29, 2012. That’s up 65.9% from $38 million a year earlier. Earnings per share rose 59.4%, to $0.51 from $0.32, on more shares outstanding. Sales rose 2.0%, to $1.0 billion from $991 million.
The higher earnings are partly due to savings from plant closures and job cuts. These moves should lower its annual costs by $100 million by the end of fiscal 2015.
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NVIDIA CORP. $12 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 624.9 million; Market cap: $7.5 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.5%; TSINetwork Rating: Average; www.nvidia .com) is down 20% in the past year. That’s mainly because slowing sales of traditional computers are hurting demand for its graphic chips, which make computer video run more smoothly and appear more lifelike.
Nvidia continues to invest a high 24% of its revenue in research. That’s helping it expand into new areas, particularly chips for mobile devices. Its new Tegra chips now power Google and Microsoft’s new tablet computers.
As the world’s leading make of video chips, Nvidia will also benefit from several long-term trends. These include new video games with faster, more realistic characters and action. Device makers are also upgrading their smartphones and tablets with higher quality displays.
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Nvidia continues to invest a high 24% of its revenue in research. That’s helping it expand into new areas, particularly chips for mobile devices. Its new Tegra chips now power Google and Microsoft’s new tablet computers.
As the world’s leading make of video chips, Nvidia will also benefit from several long-term trends. These include new video games with faster, more realistic characters and action. Device makers are also upgrading their smartphones and tablets with higher quality displays.
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MONDELEZ INTERNATIONAL INC. $25 (Nasdaq symbol MDLZ; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.8 billion; Market cap: $45.0 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.mondelezinternational.com) is one the world’s largest snack food makers. The company’s name means “delicious world” in Latin.
Mondelez 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 markets outside North America. Cookies and biscuits account for 30% of Mondelez’s sales, followed by chocolate (27%), beverages (17%), gum and candy (16%) and grocery products (10%). It gets 44% of its sales from developing markets, 37% from Europe and 19% from North America.
Mondelez is now restructuring its operations, including shutting down less-profitable plants and sales offices. Severance and other costs will total $925 million. The company also expects to pay $150 million in expenses related to the breakup from Kraft.
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Mondelez 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 markets outside North America. Cookies and biscuits account for 30% of Mondelez’s sales, followed by chocolate (27%), beverages (17%), gum and candy (16%) and grocery products (10%). It gets 44% of its sales from developing markets, 37% from Europe and 19% from North America.
Mondelez is now restructuring its operations, including shutting down less-profitable plants and sales offices. Severance and other costs will total $925 million. The company also expects to pay $150 million in expenses related to the breakup from Kraft.
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TEMPUR-PEDIC $24.77 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempurpedic.com; Shares outstanding: 59.6 million; Market cap: $1.5 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.
Tempur-Pedic’s shares are down 69.7% since they hit an all-time high of $87.43 in April 2012. Competitors have introduced many new products and supported them with aggressive promotions. That has steadily pushed down Tempur-Pedic’s results.
In the three months ended September 30, 2012, revenue fell 9.2%, to $347.9 million from $383.1 million a year earlier. Excluding one-time items, earnings per share fell 22.2%, to $0.70 from $0.90.
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Tempur-Pedic’s shares are down 69.7% since they hit an all-time high of $87.43 in April 2012. Competitors have introduced many new products and supported them with aggressive promotions. That has steadily pushed down Tempur-Pedic’s results.
In the three months ended September 30, 2012, revenue fell 9.2%, to $347.9 million from $383.1 million a year earlier. Excluding one-time items, earnings per share fell 22.2%, to $0.70 from $0.90.
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INTUITIVE SURGICAL $526.46 (Nasdaq symbol ISRG; TSINetwork Rating: Average) (515-507-5000; www.intuitivesurgical.com; Shares outstanding: 39.8 million; Market cap: $21.0 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 September 30, 2012, Intuitive earned $183.3 million, or $4.59 a share. That’s up sharply from $122.4 million, or $3.13 a share, a year earlier. Revenue rose 20.4%, to $537.8 million from $446.7 million. Intuitive is debt-free, and holds cash of $2.7 billion, or $67.67 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 September 30, 2012, Intuitive earned $183.3 million, or $4.59 a share. That’s up sharply from $122.4 million, or $3.13 a share, a year earlier. Revenue rose 20.4%, to $537.8 million from $446.7 million. Intuitive is debt-free, and holds cash of $2.7 billion, or $67.67 a share.
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FORTRESS PAPER $7.00 (Toronto symbol FTP; TSINetwork Rating: Extra Risk) (1-888- 820-3888; www.fortresspaper.com; Shares outstanding: 14.5 million; Market cap: $101.5 million; No dividends paid) lost $18.1 million, or $1.26 a share, in the three months ended September 30, 2012. A year earlier, it lost $7.7 million, or $0.54. Cash flow was negative $9.5 million, or $0.66 a share, in the latest quarter, compared to negative $3.7 million, or $0.26 a share.
The company’s Dresden wallpaperproducts plant is profitable, but the Landqart security-paper operation is losing money because of the high Swiss franc. Increased competition is also making it difficult for Fortress to attract customers. As well, the Thurso dissolving pulp plant is having startup problems, and rising global production has pushed down selling prices sharply.
Fortress holds cash of $83.8 million or $5.88 a share, but its long-term debt of $245 million is a very high 241% of its $101.5- million market cap. That’s a big risk factor, especially in a company that’s reporting negative cash flow.
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The company’s Dresden wallpaperproducts plant is profitable, but the Landqart security-paper operation is losing money because of the high Swiss franc. Increased competition is also making it difficult for Fortress to attract customers. As well, the Thurso dissolving pulp plant is having startup problems, and rising global production has pushed down selling prices sharply.
Fortress holds cash of $83.8 million or $5.88 a share, but its long-term debt of $245 million is a very high 241% of its $101.5- million market cap. That’s a big risk factor, especially in a company that’s reporting negative cash flow.
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