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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EBAY INC. $47 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $61.1 billion; Price-to-sales ratio: 4.5; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) is testing a new service called eBay Now, which provides same-day delivery of goods purchased from major retailers such as Macy’s, Best Buy and Toys R Us.
eBay Now lets users order goods using their smartphones for a small fee. A courier company then picks up the merchandise from a store and delivers it to the customer. eBay’s PayPal service processes all payments.
This new service should help eBay compete with Amazon.com, which offers two-day shipping for an extra fee. Moreover, using existing stores instead of building its own warehouses— as Amazon does— will help eBay keep its delivery costs down.
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eBay Now lets users order goods using their smartphones for a small fee. A courier company then picks up the merchandise from a store and delivers it to the customer. eBay’s PayPal service processes all payments.
This new service should help eBay compete with Amazon.com, which offers two-day shipping for an extra fee. Moreover, using existing stores instead of building its own warehouses— as Amazon does— will help eBay keep its delivery costs down.
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WINDSTREAM CORP. $9.59 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 588.0 million; Market cap: $5.6 billion; Price-to-sales ratio: 1.1; Dividend yield: 10.4%; TSINetwork Rating: Average; www.windstream.com) reported revenue of $1.5 billion in the quarter ended June 30, 2012, up 49.3% from $1.0 billion a year earlier. The gain is mainly due to its December 2011 purchase of PAETEC Holding Corp., which sells telecommunication services to businesses. Integration costs cut its earnings by 43.4%, to $54.7 million, or $0.09 a share, from $96.7 million, or $0.19 a share.
As a result of this purchase, Windstream now gets 68% of its revenue from broadband services, up 2.5% from a year earlier. That’s helping it offset declining traditional phone revenue.
The company feels that closing overlapping functions will save it $50 million in 2012 and $100 million by the end of 2014. That should let it keep paying quarterly dividends of $0.25 a share, for a 10.4% annualized yield.
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As a result of this purchase, Windstream now gets 68% of its revenue from broadband services, up 2.5% from a year earlier. That’s helping it offset declining traditional phone revenue.
The company feels that closing overlapping functions will save it $50 million in 2012 and $100 million by the end of 2014. That should let it keep paying quarterly dividends of $0.25 a share, for a 10.4% annualized yield.
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SONY CORP. ADRs $12 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $12.0 billion; Price-to-sales ratio: 0.2; Dividend yield: 2.7%; TSINetwork Rating: Average; www.sony.com) is buying California-based Gaikai Inc., whose technology makes it easier to play online video games. The purchase will help Sony sell more video games to users of its mobile phones and handheld gaming devices.
The company will pay $380 million for Gaikai when the deal closes later this year. To put that in context, it lost $312 million, or $0.31 per ADR, in the three months ended June 30, 2012.
Sony is a hold.
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The company will pay $380 million for Gaikai when the deal closes later this year. To put that in context, it lost $312 million, or $0.31 per ADR, in the three months ended June 30, 2012.
Sony is a hold.
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APACHE CORP. $89 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 391.2 million; Market cap: $34.8 billion; Price-to-sales ratio: 2.0; Dividend yield: 0.8%; TSINetwork Rating: Average; www.apachecorp.com) produces oil and natural gas from properties in the U.S., Canada, the U.K., Australia, Egypt and Argentina. Gas accounts for 55% of its production, and oil supplies the remaining 45%.
Due to low natural gas prices, the company recently wrote down the value of its Canadian gas properties by $480 million. Without this charge, its earnings fell 34.9% in the three months ended June 30, 2012, to $821 million, or $2.07 a share. A year earlier, it earned $1.3 billion, or $3.22 a share. Revenue fell 8.4%, to $4.0 billion from $4.3 billion.
The company’s aggressive drilling program should let it reach its goal of increasing its production by 6% to 9% in 2012. The stock trades at a low 8.8 times the $10.08 a share that Apache will likely earn in 2012. The yearly dividend of $0.68 yields 0.8%.
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Due to low natural gas prices, the company recently wrote down the value of its Canadian gas properties by $480 million. Without this charge, its earnings fell 34.9% in the three months ended June 30, 2012, to $821 million, or $2.07 a share. A year earlier, it earned $1.3 billion, or $3.22 a share. Revenue fell 8.4%, to $4.0 billion from $4.3 billion.
The company’s aggressive drilling program should let it reach its goal of increasing its production by 6% to 9% in 2012. The stock trades at a low 8.8 times the $10.08 a share that Apache will likely earn in 2012. The yearly dividend of $0.68 yields 0.8%.
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CHEVRON CORP. $112 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $224.0 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.chevron.com) is the second-largest integrated oil company in the U.S. after ExxonMobil.
Chevron is still assessing the damage caused by a fire at its oil refinery in Richmond, California. This facility processes 245,000 barrels of crude oil a day and accounts for 10% of the refining capacity on the U.S. west coast. It will likely be several months before it resumes normal operations.
The company’s refineries supply just 11% of its earnings, so the outage should have little impact on its future profits. As well, Chevron’s selling prices for gasoline and other fuels are rising. That should help offset the repair costs.
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Chevron is still assessing the damage caused by a fire at its oil refinery in Richmond, California. This facility processes 245,000 barrels of crude oil a day and accounts for 10% of the refining capacity on the U.S. west coast. It will likely be several months before it resumes normal operations.
The company’s refineries supply just 11% of its earnings, so the outage should have little impact on its future profits. As well, Chevron’s selling prices for gasoline and other fuels are rising. That should help offset the repair costs.
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J.C. PENNEY CO. INC. $24 (New York symbol JCP; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 218.8 million; Market cap: $5.3 billion; Price-to-sales ratio: 0.3; Dividend suspended in May 2012; TSINetwork Rating: Extra Risk; www.jcpenney.com) operates more than 1,100 department stores in the U.S. and Puerto Rico. It also sells goods over the Internet.
In response to strong competition from discount retailers, Penney is shifting to an everyday pricing strategy. The company feels that predictable prices will spur customers to visit more often instead of waiting for items to go on sale.
Penney is also remodelling its stores to feature more in-store boutiques devoted to single brands, such as its Sephora beauty and fragrance shops. As well, the company is investing in new computer systems and simplifying its purchasing.
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In response to strong competition from discount retailers, Penney is shifting to an everyday pricing strategy. The company feels that predictable prices will spur customers to visit more often instead of waiting for items to go on sale.
Penney is also remodelling its stores to feature more in-store boutiques devoted to single brands, such as its Sephora beauty and fragrance shops. As well, the company is investing in new computer systems and simplifying its purchasing.
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NVIDIA CORP. $15 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 618.8 million; Market cap: $9.3 billion; Price-to-sales ratio: 2.3; No dividends paid; TSINetwork Rating: Average; www.nvidia.com) continues to see strong demand for its Tegra chips from makers of smartphones and tablet computers.
In its 2013 second quarter, which ended July 29, 2012, Nvidia’s sales rose 2.7%, to $1.04 billion from $1.02 billion a year earlier. However, earnings fell 11.9%, to $170.5 million from $193.5 million. Earnings per share fell 15.6%, to $0.27 from $0.32, on more shares outstanding.
Research spending rose 13.5%, to $281.2 million, or a high 26.9% of its revenue. This was the main reason for the lower earnings. However, new chips from these outlays should spur sales.
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In its 2013 second quarter, which ended July 29, 2012, Nvidia’s sales rose 2.7%, to $1.04 billion from $1.02 billion a year earlier. However, earnings fell 11.9%, to $170.5 million from $193.5 million. Earnings per share fell 15.6%, to $0.27 from $0.32, on more shares outstanding.
Research spending rose 13.5%, to $281.2 million, or a high 26.9% of its revenue. This was the main reason for the lower earnings. However, new chips from these outlays should spur sales.
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INTERNATIONAL BUSINESS MACHINES CORP. $197 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $216.7 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.ibm.com) is paying an undisclosed sum for Texas Memory Systems. The deal should close by the end of 2012.
Privately held Texas Memory specializes in solid-state computer storage drives. Unlike regular hard drives, these are flash-memory drives with no moving parts. As a result, they use less energy and let computers access data quicker. This technology should speed up IBM’s mainframes and enhance its analytics software, which helps businesses and governments quickly gather and analyze huge amounts of data.
IBM is our #1 buy for 2012.
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Privately held Texas Memory specializes in solid-state computer storage drives. Unlike regular hard drives, these are flash-memory drives with no moving parts. As a result, they use less energy and let computers access data quicker. This technology should speed up IBM’s mainframes and enhance its analytics software, which helps businesses and governments quickly gather and analyze huge amounts of data.
IBM is our #1 buy for 2012.
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TENNANT CORP. $43 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.6 million; Market cap: $799.8 million; Price-to-sales ratio: 1.1; Dividend yield: 1.6%; TSINetwork Rating: Average; www.tennantco.com) makes industrial floor-cleaning equipment, including scrubbers, sweepers and polishers. It also manufactures cleaning gear for garages, stadiums, parking lots and city streets.
The company continues to see strong demand for its ec-H2O floor-scrubbing machine, which uses electricity to make tap water act like a detergent. That eliminates the need for soaps and cleaning agents, and lowers the machine’s operating costs.
Tennant has also developed other environmentally friendly equipment. For example, the Orbio 5000-sc creates a cleaning liquid using water, salt and electricity. Users can pour this solution into spray bottles and floor scrubbers.
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The company continues to see strong demand for its ec-H2O floor-scrubbing machine, which uses electricity to make tap water act like a detergent. That eliminates the need for soaps and cleaning agents, and lowers the machine’s operating costs.
Tennant has also developed other environmentally friendly equipment. For example, the Orbio 5000-sc creates a cleaning liquid using water, salt and electricity. Users can pour this solution into spray bottles and floor scrubbers.
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BRIGGS & STRATTON CORP. $18 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 48.7 million; Market cap: $876.6 million; Priceto- sales ratio: 0.4; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.briggsandstratton.com) is the world’s largest maker of lawn mower engines. This business accounts for 58% of Briggs’s sales. It gets the remaining 42% by making other home and garden equipment, such as generators, pressure washers and snow blowers.
The company is seeing weaker sales in North America— partly due to this year’s drought— and in Western Europe. In response, Briggs recently closed two plants in the U.S. and one in the Czech Republic. Severance payments and related costs totalled $49.9 million, but these moves should lower the company’s annual costs by $45 million by 2014.
Briggs also plans to stop selling lawn mowers to big retail chains like Wal-Mart and Home Depot. This will cut its annual sales by $100 million, but the company’s profit margins on these items are low, so this move should improve its overall earnings.
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The company is seeing weaker sales in North America— partly due to this year’s drought— and in Western Europe. In response, Briggs recently closed two plants in the U.S. and one in the Czech Republic. Severance payments and related costs totalled $49.9 million, but these moves should lower the company’s annual costs by $45 million by 2014.
Briggs also plans to stop selling lawn mowers to big retail chains like Wal-Mart and Home Depot. This will cut its annual sales by $100 million, but the company’s profit margins on these items are low, so this move should improve its overall earnings.
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