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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J.P. MORGAN CHASE & CO. $42 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.8 billion; Market cap: $159.6 billion; Priceto- sales ratio: 1.7; Dividend yield: 2.9%; TSINetwork Rating: Average; www.jpmorganchase .com) earned a record $5.7 billion in the three months ended September 30, 2012. That’s up 33.9% from $4.3 billion a year earlier. Earnings per share rose 38.2%, to $1.40 from $1.02, on fewer shares outstanding.
More borrowers are paying back their loans on time. As a result, Morgan set aside $1.8 billion to cover bad loans in the quarter, down 25.8% from $2.4 billion a year earlier.
Low interest rates are also spurring demand for mortgages and credit cards. At the same time, the bank is seeing higher underwriting revenue as businesses issue more stocks and bonds. As a result, its overall revenue rose 5.8% in the quarter, to $25.1 billion from $23.8 billion.
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More borrowers are paying back their loans on time. As a result, Morgan set aside $1.8 billion to cover bad loans in the quarter, down 25.8% from $2.4 billion a year earlier.
Low interest rates are also spurring demand for mortgages and credit cards. At the same time, the bank is seeing higher underwriting revenue as businesses issue more stocks and bonds. As a result, its overall revenue rose 5.8% in the quarter, to $25.1 billion from $23.8 billion.
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WELLS FARGO & CO. $34 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $180.2 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.6%; TSINetwork Rating: Average; www.wellsfargo.com) earned $4.9 billion, or $0.88 a share, in the three months ended September 30, 2012. That’s up 21.7% from $4.1 billion, or $0.72 a share, a year earlier.
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 the latest quarter, it set aside $1.6 billion to cover bad loans, down 12.1% from $1.8 billion a year ago.
Revenue rose 8.0%, to $21.2 billion from $19.6 billion. Low interest rates continue to encourage businesses and consumers to take out loans. The wealth management division is also attracting more clients.
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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 the latest quarter, it set aside $1.6 billion to cover bad loans, down 12.1% from $1.8 billion a year ago.
Revenue rose 8.0%, to $21.2 billion from $19.6 billion. Low interest rates continue to encourage businesses and consumers to take out loans. The wealth management division is also attracting more clients.
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MCDONALD’S CORP. $87 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.0 billion; Market cap: $87.0 billion; Price-to-sales ratio: 3.2; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.mcdonalds.com) is seeing stronger competition from other fast-food chains. The higher U.S. dollar is also undermining the value of its overseas profits.
In the three months ended September 30, 2012, the company’s sales fell 0.2%, to $7.15 billion from $7.17 billion a year earlier. However, if you exclude the negative impact of foreign exchange rates, sales would have risen 4%. Overall same-store sales rose 1.9% in the quarter.
Earnings fell 3.5%, to $1.46 billion from $1.51 billion. Due to fewer shares outstanding, earnings per share fell 1.4%, to $1.43 from $1.45. On a constant-currency basis, earnings per share would have risen 4%. The company also raised its quarterly dividend by 10.0%, to $0.77 a share from $0.70. The new annual rate of $3.08 yields 3.5%.
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In the three months ended September 30, 2012, the company’s sales fell 0.2%, to $7.15 billion from $7.17 billion a year earlier. However, if you exclude the negative impact of foreign exchange rates, sales would have risen 4%. Overall same-store sales rose 1.9% in the quarter.
Earnings fell 3.5%, to $1.46 billion from $1.51 billion. Due to fewer shares outstanding, earnings per share fell 1.4%, to $1.43 from $1.45. On a constant-currency basis, earnings per share would have risen 4%. The company also raised its quarterly dividend by 10.0%, to $0.77 a share from $0.70. The new annual rate of $3.08 yields 3.5%.
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PFIZER INC. $25 (New York symbol PFE; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 7.5 billion; Market cap: $187.5 billion; Price-to-sales ratio: 3.0; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.pfizer.com) has agreed to buy NextWave Pharmaceuticals Inc.
This private company has developed Quillivant XR, a liquid drug that treats attention deficit/hyperactivity disorder (ADHD). Pfizer’s extensive marketing and distribution operations should help expand sales of Quillivant XR.
Based on future sales of this drug, this purchase could cost Pfizer a total of $700 million. That’s equal to 15% of the $4.7billion, or $0.62 a share, that it earned in the second quarter of 2012. The deal should close by the end of 2012.
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This private company has developed Quillivant XR, a liquid drug that treats attention deficit/hyperactivity disorder (ADHD). Pfizer’s extensive marketing and distribution operations should help expand sales of Quillivant XR.
Based on future sales of this drug, this purchase could cost Pfizer a total of $700 million. That’s equal to 15% of the $4.7billion, or $0.62 a share, that it earned in the second quarter of 2012. The deal should close by the end of 2012.
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ABB LTD. ADRs $19 (New York symbol ABB; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 2.3 billion; Market cap: $43.7 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.abb.com) is a leading maker of power technologies for utilities, including transformers, transmission systems and circuit breakers. The Switzerland-based company also makes automation systems and robotics that industrial clients use to make their facilities more productive.
ABB has spent over $7.6 billion on acquisitions, including the cash these companies held, since the start of 2011. Expanding by acquisition adds risk, but these purchases have helped ABB expand into new regions. They also nicely complement its current products.
For example, in January 2011 ABB paid $4.2 billion for Arkansas-based Baldor Electric Co., which makes electric motors and related products, such as conveyor belts, fans and pumps.
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ABB has spent over $7.6 billion on acquisitions, including the cash these companies held, since the start of 2011. Expanding by acquisition adds risk, but these purchases have helped ABB expand into new regions. They also nicely complement its current products.
For example, in January 2011 ABB paid $4.2 billion for Arkansas-based Baldor Electric Co., which makes electric motors and related products, such as conveyor belts, fans and pumps.
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UNITED TECHNOLOGIES CORP. $78 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 911.8 million; Market cap: $71.1 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.utc.com) has six main businesses: Pratt & Whitney (aircraft engines); Otis (elevators); Carrier (heating and air-conditioning equipment); UTC Fire & Security (burglar alarms and fire-protection services); Sikorsky (helicopters); and Hamilton Sundstrand (aircraft controls).
In July 2012, the company completed its $18.4- billion acquisition of North Carolina-based Goodrich Corp., which makes aircraft parts, including landing gear, wheels and brakes.
Meanwhile, United Technologies earned $1.25 bil- lion in the three months ended September 30, 2012. That’s down 3.3% from $1.3 billion a year earlier. Because of more shares outstanding, earnings per share fell 4.2%, to $1.37 from $1.43.
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In July 2012, the company completed its $18.4- billion acquisition of North Carolina-based Goodrich Corp., which makes aircraft parts, including landing gear, wheels and brakes.
Meanwhile, United Technologies earned $1.25 bil- lion in the three months ended September 30, 2012. That’s down 3.3% from $1.3 billion a year earlier. Because of more shares outstanding, earnings per share fell 4.2%, to $1.37 from $1.43.
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GENERAL ELECTRIC CO. $21 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 billion; Market cap: $222.6 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.ge.com) is one of the world’s largest manufacturers. It makes equipment for generating and distributing electricity, such as turbines; aircraft engines; health care equipment; home appliances and lighting; and locomotives.
To cut the risk of further losses following the 2008 / 2009 financial crisis, the company continues to scale back its GE Capital subsidiary, which provides loans and other financial services to GE’s customers. This business now accounts for 31% of GE’s overall revenue and 45% of its earnings.
In the three months ended September 30, 2012, GE’s revenue rose 2.8%, to $36.3 billion from $35.4 billion a year earlier. Revenue from the industrial businesses rose 7.4%, partly because GE bought companies that supply equipment to oil and gas producers. That offset lower sales of wind-power gear. The company continues to shrink GE Capital. As a result, this division’s revenue fell 5.4%. Earnings rose 9.9%, to $3.8 billion from $3.5 billion. Because of fewer shares outstanding, earnings per share rose 12.5%, to $0.36 from $0.32.
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To cut the risk of further losses following the 2008 / 2009 financial crisis, the company continues to scale back its GE Capital subsidiary, which provides loans and other financial services to GE’s customers. This business now accounts for 31% of GE’s overall revenue and 45% of its earnings.
In the three months ended September 30, 2012, GE’s revenue rose 2.8%, to $36.3 billion from $35.4 billion a year earlier. Revenue from the industrial businesses rose 7.4%, partly because GE bought companies that supply equipment to oil and gas producers. That offset lower sales of wind-power gear. The company continues to shrink GE Capital. As a result, this division’s revenue fell 5.4%. Earnings rose 9.9%, to $3.8 billion from $3.5 billion. Because of fewer shares outstanding, earnings per share rose 12.5%, to $0.36 from $0.32.
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MICROSOFT CORP. $28 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.4 billion; Market cap: $235.2 billion; Priceto- sales ratio: 3.3; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.microsoft.com) has more than doubled its revenue and earnings in the past decade, thanks to steady demand for its Windows operating system and its Office suite of business programs. It has also increased its dividend from $0.08 a share in 2003 to $0.92 in 2012.
Even so, the stock has made little progress during this time. That’s partly because more people are using mobile devices instead of computers running Microsoft software.
The company hopes to take advantage of rising demand for mobile access with its new Windows 8 operating system, which will work with smartphones and tablet computers as well as traditional computers.
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Even so, the stock has made little progress during this time. That’s partly because more people are using mobile devices instead of computers running Microsoft software.
The company hopes to take advantage of rising demand for mobile access with its new Windows 8 operating system, which will work with smartphones and tablet computers as well as traditional computers.
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ADOBE SYSTEMS $33.44 (Nasdaq symbol ADBE; TSINetwork Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 496.1 million; Market cap: $16.6 billion; No dividends paid) makes software that lets computer users create, edit and share documents in the popular PDF format. As well, graphic designers use Adobe’s software to create print publications and web pages.
Adobe’s revenue rose 6.6% in the three months ended August 31, 2012, to $1.08 billion from $1.03 billion a year earlier. Even so, that missed the consensus estimate of $1.1 billion.
The company is doing a good job of selling its Creative Cloud package of photo-editing and desktop-publishingprograms as a subscription service instead of a one-time purchase.
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Adobe’s revenue rose 6.6% in the three months ended August 31, 2012, to $1.08 billion from $1.03 billion a year earlier. Even so, that missed the consensus estimate of $1.1 billion.
The company is doing a good job of selling its Creative Cloud package of photo-editing and desktop-publishingprograms as a subscription service instead of a one-time purchase.
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FAIR ISAAC CORP. $44.96 (New York symbol FICO; TSINetwork Rating: Average) (415-472-2211; www.fairisaac.com; Shares outstanding: 33.8 million; Market cap: $1.5 billion; Dividend yield: 0.2%) makes FICO Scores, the computer program that dominates the market for software that businesses use to evaluate customer creditworthiness. The company is also profiting by selling software that helps credit card issuers control fraud and analyze their clients’ spending patterns. I
In its fiscal 2012 third quarter, which ended June 30, 2012, Fair Isaac’s earnings per share rose 1.7%, to $0.59 from $0.58. That matched the consensus estimate of $0.59. Revenue rose 6.5%, to $160.5 million from $150.7 million.
In its fiscal 2012 third quarter, which ended June 30, 2012, Fair Isaac’s earnings per share rose 1.7%, to $0.59 from $0.58. That matched the consensus estimate of $0.59. Revenue rose 6.5%, to $160.5 million from $150.7 million.