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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CALIAN TECHNOLOGIES (Toronto symbol CTY; www.calian.com) operates in two areas: the business and technology services division (which supplies 70% of Calian’s revenue) provides engineers, health care workers and other skilled professionals to clients on a contract basis. The systems engineering division (30% of revenue) sells hardware and software for testing, operating and managing satellite and other communication systems. In the three months ended June 30, 2012, Calian’s revenue rose 1.4%, to $59.3 million from $58.5 million a year earlier. Earnings rose slightly, to $3.48 million, or $0.45 a share, from $3.45 million, or $0.45 a share....
MONSANTO CO. $86 (New York symbol MON, Aggressive Growth Portfolio; Manufacturing & Industry sector; Shares outstanding: 534.6 million; Market cap: $46.0 billion; Price-to-sales ratio: 3.4; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.monsanto.com) is a multinational firm that sells technology-based agricultural products, such as genetically modified seeds, to farmers, grain processors and food companies. Overseas markets account for about 45% of its revenue.
Monsanto has two business segments. Its Seeds and Genomics division, which supplies 73% of its total revenue, makes genetically modified seeds for corn, soybeans and other crops.
The company gets the remaining 27% of its sales from its Agricul- tural Productivity division, which makes herbicides for farmers under the Roundup brand. Roundup accounts for about 10% of Monsanto’s overall sales. The company also makes lawn and garden herbicides for consumers.
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Monsanto has two business segments. Its Seeds and Genomics division, which supplies 73% of its total revenue, makes genetically modified seeds for corn, soybeans and other crops.
The company gets the remaining 27% of its sales from its Agricul- tural Productivity division, which makes herbicides for farmers under the Roundup brand. Roundup accounts for about 10% of Monsanto’s overall sales. The company also makes lawn and garden herbicides for consumers.
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MCGRAW-HILL COMPANIES INC. $55 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 280.2 million; Market cap: $15.4 billion; Price-to-sales ratio: 2.4; Dividend yield: 1.9%; TSINetwork Rating: Average; www.mcgraw-hill.com) will soon split into two separate, publicly traded companies.
One of these new firms, McGraw-Hill Financial, will sell financial-information products. This business will include Standard & Poor’s, which provides credit ratings on bonds, and McGraw-Hill’s J.D. Power market- research firm. Right now, this division supplies 60% of McGraw-Hill’s total revenue.
The other company, McGraw-Hill Education Inc., will publish textbooks for schools and colleges. It sells its products in 28 countries and 65 languages.
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One of these new firms, McGraw-Hill Financial, will sell financial-information products. This business will include Standard & Poor’s, which provides credit ratings on bonds, and McGraw-Hill’s J.D. Power market- research firm. Right now, this division supplies 60% of McGraw-Hill’s total revenue.
The other company, McGraw-Hill Education Inc., will publish textbooks for schools and colleges. It sells its products in 28 countries and 65 languages.
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SNAP-ON INC. $76 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.2 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.5; Dividend yield: 1.8%; TSINetwork Rating: Average; www.snapon.com) makes tools for auto mechanics. The company sells its products through a fleet of franchised vans that visit garages. It also makes specialized tools for mining companies, electrical power generators and other industrial customers.
Snap-On’s earnings rose 8.6% in the three months ended September 30, 2012, to $1.26 from $1.16 a year earlier. That’s mainly due to improved results from its financing division, which provides loans to help mechanics buy Snap-On tools. Revenue rose 3.0%, to $752.1 million from $729.9 million.
Snap-On is a buy.
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Snap-On’s earnings rose 8.6% in the three months ended September 30, 2012, to $1.26 from $1.16 a year earlier. That’s mainly due to improved results from its financing division, which provides loans to help mechanics buy Snap-On tools. Revenue rose 3.0%, to $752.1 million from $729.9 million.
Snap-On is a buy.
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DIAGEO PLC ADRs $113 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 627.1 million; Market cap: $70.9 billion; Price-to-sales ratio: 4.1; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.diageo.com) continues see strong demand for its top brands, such as Smirnoff vodka, Johnnie Walker scotch whisky and Captain Morgan rum, in fast-growing markets like Latin America and Africa. The company aims to get half of its sales from emerging markets by 2015, up from the current 40%.
In its fiscal 2013 first quarter, which ended September 30, 2012, Diageo’s sales rose 6% from a year earlier. If you exclude contributions from acquisitions, sales would have risen 5%.
Sales increased 6% in North America, 11% in Africa, 16% in Latin America and 2% in Asia. However, European sales fell 1%.
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In its fiscal 2013 first quarter, which ended September 30, 2012, Diageo’s sales rose 6% from a year earlier. If you exclude contributions from acquisitions, sales would have risen 5%.
Sales increased 6% in North America, 11% in Africa, 16% in Latin America and 2% in Asia. However, European sales fell 1%.
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FEDEX CORP. $91 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 314.1 million; Market cap: $28.6 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.6%; TSI Network Rating: Average; www.fedex.com) is seeing lower demand for its overnight international air delivery services. That’s because the uncertain economy is prompting shippers to use lower but cheaper forms of transportation, such as trucks and ships. In response, FedEx plans to lower its costs by replacing older planes and trucks with more fuel-efficient models. It is also cutting jobs and consolidating facilities.
The company expects these moves to increase its earnings by $1.7 billion by May 31, 2015, which is the end of its 2015 fiscal year. In its latest fiscal year, FedEx earned $2.1 billion, or $6.59 a share.
FedEx is a buy.
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The company expects these moves to increase its earnings by $1.7 billion by May 31, 2015, which is the end of its 2015 fiscal year. In its latest fiscal year, FedEx earned $2.1 billion, or $6.59 a share.
FedEx is a buy.
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PHILIPS ELECTRONICS N.V. ADRs $25 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $25.0 billion; Priceto- sales ratio: 0.8; Dividend yield: 3.7%; TSINetwork Rating: Average; www.philips.com) continues to make progress with a major restructuring plan that includes cutting 4% of its workforce. This should save it 1.1 billion euros annually by 2015 (1 euro = $1.29 Canadian). It is also expanding its less-cyclical operations, such as medical equipment, and may sell its consumer electronics division.
Mainly due to savings from its restructuring, Philips’ earnings rose 30.8% in the three months ended September 30, 2012, to 170 million euros, or 0.18 euros per ADR (each American Depositary Receipt equals one Philips common share). A year earlier, it earned 130 million euros, or 0.14 euros per ADR. Sales rose 13.6%, to 6.1 billion euros from 5.4 billion euros.
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Mainly due to savings from its restructuring, Philips’ earnings rose 30.8% in the three months ended September 30, 2012, to 170 million euros, or 0.18 euros per ADR (each American Depositary Receipt equals one Philips common share). A year earlier, it earned 130 million euros, or 0.14 euros per ADR. Sales rose 13.6%, to 6.1 billion euros from 5.4 billion euros.
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XEROX CORP. $6.48 (New York symbol XRX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $8.4 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.6%; TSINetwork Rating: Average; www.xerox.com) now gets half of its sales from managing certain tasks, such as billing and accounting, for its clients. It sells these services under long-term ontracts. That gives it more predictable revenue streams than selling copiers and other hardware.
Still, demand for the company’s products and services is cyclical, and the stock will likely stay in a narrow range until global economic growth improves. Xerox’s $7.5-billion long-term debt is also a high 89% of its market cap. That means the company will likely put more of its future cash flow into debt repayments and less toward buying back shares or raising its dividend.
Xerox is a sell.
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Still, demand for the company’s products and services is cyclical, and the stock will likely stay in a narrow range until global economic growth improves. Xerox’s $7.5-billion long-term debt is also a high 89% of its market cap. That means the company will likely put more of its future cash flow into debt repayments and less toward buying back shares or raising its dividend.
Xerox is a sell.
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WEYERHAEUSER CO. $28 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 537.8 million; Market cap: $15.1 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.4%; TSINetwork Rating: Extra Risk; www.weyerhaeuser.com) is a leading maker of forest products, including paper and packaging.
The stock is up 48% since the start of 2012. That’s mainly because of signs that the U.S. housing market is starting to recover, which should spur lumber demand. However, paper prices remain depressed.
As well, Weyerhaeuser trades at a high 50.9 times its projected 2012 earnings of $0.55 a share. That makes it vulnerable to sudden drop if growth slows.
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The stock is up 48% since the start of 2012. That’s mainly because of signs that the U.S. housing market is starting to recover, which should spur lumber demand. However, paper prices remain depressed.
As well, Weyerhaeuser trades at a high 50.9 times its projected 2012 earnings of $0.55 a share. That makes it vulnerable to sudden drop if growth slows.
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STATE STREET CORP. $44 (New York symbol STT; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 479.1 million; Market cap: $21.1 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.2%; TSINetwork Rating: Extra Risk; www.statestreet.com) has completed its $550-million purchase of the hedge fund management business of Goldman Sachs Group Inc. (New York symbol GS). These operations should immediately add to its earnings.
Meanwhile, the company earned $473 million in the three months ended September 30, 2012. That’s down 0.6% from $476 million a year earlier. Earnings per share rose 3.1%, to $0.99 from $0.96, on fewer shares outstanding. Revenue fell 2.7%, to $2.35 billion from $2.41 billion, as lower volumes hurt its trading division.
State Street is a buy.
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Meanwhile, the company earned $473 million in the three months ended September 30, 2012. That’s down 0.6% from $476 million a year earlier. Earnings per share rose 3.1%, to $0.99 from $0.96, on fewer shares outstanding. Revenue fell 2.7%, to $2.35 billion from $2.41 billion, as lower volumes hurt its trading division.
State Street is a buy.
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