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. $35 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.8 billion; Market cap: $133.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.4%; TSINetwork Rating: Average; www.jpmorganchase.com) now says it lost $4.4 billion in the second quarter on hedging contracts that it uses to cut the risk on corporate bonds. Its original estimate was a $2-billion loss.
Even with the bigger loss, Morgan earned $5.0 billion in the three months ended June 30, 2012, down 8.7% from $5.4 billion a year earlier. Earnings per share fell 4.7%, to $1.21 from $1.27, on fewer shares outstanding. Morgan continues to benefit as more borrowers repay their loans on time: it set aside $214 million to cover bad loans in the quarter, down 88.2% from $1.8 billion a year ago.
J.P. Morgan Chase is still a hold.
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Even with the bigger loss, Morgan earned $5.0 billion in the three months ended June 30, 2012, down 8.7% from $5.4 billion a year earlier. Earnings per share fell 4.7%, to $1.21 from $1.27, on fewer shares outstanding. Morgan continues to benefit as more borrowers repay their loans on time: it set aside $214 million to cover bad loans in the quarter, down 88.2% from $1.8 billion a year ago.
J.P. Morgan Chase is still a hold.
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PROCTER & GAMBLE CO. $64 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.7 billion; Market cap: $172.8 billion; Price-to-sales ratio: 2.1; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.pg.com) rose 5% after activist investment firm Pershing Square Capital Management announced that it now owns around 1% of Procter’s shares.
Pershing Square has a long history of making undervalued companies more profitable. It often does this by encouraging management to sell real estate or underperforming divisions.
Rising fuel and raw-material costs have hurt Procter’s profit margins. In response, the company recently announced a major restructuring plan, including cutting jobs and spending less on advertising. Pershing Square’s involvement should continue to spur the stock.
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Pershing Square has a long history of making undervalued companies more profitable. It often does this by encouraging management to sell real estate or underperforming divisions.
Rising fuel and raw-material costs have hurt Procter’s profit margins. In response, the company recently announced a major restructuring plan, including cutting jobs and spending less on advertising. Pershing Square’s involvement should continue to spur the stock.
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TIM HORTONS INC. $52 (New York symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 155.8 million; Market cap: $8.1 billion; Price-to-sales ratio: 2.8; Dividend yield: 1.3%; TSINetwork Rating: Average; www.timhortons.com) operates 3,315 coffee-and-donut stores in Canada, 721 in the U.S. and six in the Middle East. Franchisees operate 99.4% of these outlets.
The company continues to expand its menu. For example, it now sells ice cream in 135 of its stores in Canada and 93 in the U.S., thanks to an agreement with U.S.-based Cold Stone Creamery. Tim Hortons outlets get most of their traffic in the morning, so selling ice cream helps attract more customers in the afternoon and evening.
The company is also introducing its own new products, like soups and panini sandwiches. That’s helping it compete with larger chains. Tim Hortons now feels it can overtake McDonald’s as Canada’s leading seller of fast-food lunches in the next five years.
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The company continues to expand its menu. For example, it now sells ice cream in 135 of its stores in Canada and 93 in the U.S., thanks to an agreement with U.S.-based Cold Stone Creamery. Tim Hortons outlets get most of their traffic in the morning, so selling ice cream helps attract more customers in the afternoon and evening.
The company is also introducing its own new products, like soups and panini sandwiches. That’s helping it compete with larger chains. Tim Hortons now feels it can overtake McDonald’s as Canada’s leading seller of fast-food lunches in the next five years.
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YUM! BRANDS INC. $64 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 458.0 million; Market cap: $29.3 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.yum.com) operates 35,822 fast-food restaurants in over 120 countries. Its main banners include KFC, Pizza Hut and Taco Bell.
The company now gets 49% of its sales and 38% of its earnings from its 5,251 outlets in China. It was the first fast-food chain to enter China, in 1987, and is now a leader in that country. Yum plans to open 700 more restaurants in China in 2012.
Yum aims to repeat this success in India, where it now has 479 outlets and plans to open 100 more by the end of 2012. Yum’s India division now accounts for less than 1% of its overall sales and earnings.
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The company now gets 49% of its sales and 38% of its earnings from its 5,251 outlets in China. It was the first fast-food chain to enter China, in 1987, and is now a leader in that country. Yum plans to open 700 more restaurants in China in 2012.
Yum aims to repeat this success in India, where it now has 479 outlets and plans to open 100 more by the end of 2012. Yum’s India division now accounts for less than 1% of its overall sales and earnings.
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MCDONALD’S CORP. $88 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.0 billion; Market cap: $88.0 billion; Price-to-sales ratio: 3.3; Dividend yield: 3.2%; TSINetwork Rating: Above Average) is the world’s largest fast-food company by sales. Its 33,735 restaurants in 119 countries serve a wide variety of foods, but they are best known for their hamburgers and french fries.
The stock is down 12% since the start of 2012, mainly due to concerns about the company’s exposure to the slowing European economy.
Europe accounts for 42% of McDonald’s sales and 38% of its earnings. The company’s other divisions include the U.S. (34% of sales, 45% of earnings), and Asia (24%, 17%).
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The stock is down 12% since the start of 2012, mainly due to concerns about the company’s exposure to the slowing European economy.
Europe accounts for 42% of McDonald’s sales and 38% of its earnings. The company’s other divisions include the U.S. (34% of sales, 45% of earnings), and Asia (24%, 17%).
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EBAY INC. $43 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $55.9 billion; Price-to-sales ratio: 4.3; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) gets half of its revenue from its auction websites, which now have 104.8 million users.
The company gets a further 40% from processing online payments through its PayPal service. This business has huge potential, particularly as it expands to retail stores and handling payments from smartphones.
The remaining 10% comes from GSI Commerce Inc., which helps businesses process orders from their websites. eBay paid $2.4 billion for GSI in June 2011.
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The company gets a further 40% from processing online payments through its PayPal service. This business has huge potential, particularly as it expands to retail stores and handling payments from smartphones.
The remaining 10% comes from GSI Commerce Inc., which helps businesses process orders from their websites. eBay paid $2.4 billion for GSI in June 2011.
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AT&T INC. $35 (New York symbol T; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 5.8 billion; Market cap: $203.0 billion; Price-to-sales ratio: 1.6; Dividend yield: 5.0%; TSINetwork Rating: Average; www.att.com) has 105.2 million wireless subscribers across the U.S. That makes it the country’s second-largest wireless-service provider, after Verizon Wireless. AT&T gets 52% of its revenue and 70% of its earnings from its wireless business.
The wireline division supplies most of the company’s remaining revenue and earnings. This business sells land line services, TV packages and high-speed Internet access to 40.2 million customers.
AT&T’s revenue rose 3.5%, from $119.8 billion in 2007 to $124.0 billion in 2008. Revenue fell 0.8% in 2009, to $123.0 billion, due to weaker demand for traditional phone services. Revenue rebounded to $124.4 billion in 2010, and to $126.7 billion in 2011.
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The wireline division supplies most of the company’s remaining revenue and earnings. This business sells land line services, TV packages and high-speed Internet access to 40.2 million customers.
AT&T’s revenue rose 3.5%, from $119.8 billion in 2007 to $124.0 billion in 2008. Revenue fell 0.8% in 2009, to $123.0 billion, due to weaker demand for traditional phone services. Revenue rebounded to $124.4 billion in 2010, and to $126.7 billion in 2011.
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Pat McKeough responds to many personal questions on 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. Our Inner Circle Q&A frequently features questions on tech stocks. This past week, one Inner Circle member asked about a tech stock that has recently had a surge in its share price. Its unique software for submarine networks has helped this stock rise and Pat assesses whether it can sustain its momentum. ...
TEMPUR-PEDIC $25.53 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempurpedic.com; Shares outstanding: 63.5 million; Market cap: $1.6 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 70.8% since they hit an all-time high of $87.43 in April 2012.
The decline came despite a strong 2012 first quarter in which Tempur-Pedic’s earnings per share rose 26.5%, to $0.86 from $0.68 a year earlier, and sales rose 18.0%, to $384.4 million from $325.8 million.
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Tempur-Pedic’s shares are down 70.8% since they hit an all-time high of $87.43 in April 2012.
The decline came despite a strong 2012 first quarter in which Tempur-Pedic’s earnings per share rose 26.5%, to $0.86 from $0.68 a year earlier, and sales rose 18.0%, to $384.4 million from $325.8 million.
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INTUITIVE SURGICAL $549.36 (Nasdaq symbol ISRG; TSINetwork Rating: Average) (515-507-5000; www.intuitivesurgical.com; Shares outstanding: 39.7 million; Market cap: $21.8 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 March 31, 2012, Intuitive earned $143.5 million, or $3.63 a share. That’s up 37.8% from $104.1 million, or $2.66 a share, a year earlier. Revenue rose 27.6%, to $495.2 million from $388.1 million. Intuitive is debt-free, and holds cash of $2.4 billion, or $60.45 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 March 31, 2012, Intuitive earned $143.5 million, or $3.63 a share. That’s up 37.8% from $104.1 million, or $2.66 a share, a year earlier. Revenue rose 27.6%, to $495.2 million from $388.1 million. Intuitive is debt-free, and holds cash of $2.4 billion, or $60.45 a share.
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