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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HEWLETT-PACKARD CO. $20 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.0 billion; Market cap: $40.0 billion; Price-to-sales ratio: 0.3; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.hp.com) recently announced a major restructuring that includes merging its computer and printer businesses into a single division. The company also plans to cut 8% of its workforce over the next two years.
Hewlett expects to pay $3.5 billion in severance and related costs. However, these moves should save it $3.0 billion to $3.5 billion a year. The company will put most of these savings toward developing new products and services, especially in fastgrowing areas like cloud computing, analytics software and computer security.
In Hewlett’s fiscal 2012 second quarter, which ended April 30, 2012, sales fell 3.0%, to $30.7 billion from $31.6 billion a year earlier.
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Hewlett expects to pay $3.5 billion in severance and related costs. However, these moves should save it $3.0 billion to $3.5 billion a year. The company will put most of these savings toward developing new products and services, especially in fastgrowing areas like cloud computing, analytics software and computer security.
In Hewlett’s fiscal 2012 second quarter, which ended April 30, 2012, sales fell 3.0%, to $30.7 billion from $31.6 billion a year earlier.
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INTERNATIONAL BUSINESS MACHINES CORP. $193 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.2 billion; Market cap: $231.6 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.ibm.com) started up in 1911, which makes it the world’s oldest computer company. IBM now operates in over 170 countries.
The company has long been known as a maker of mainframe computers. However, these products supplied just 18% of its revenue in 2011. That’s because IBM continues to expand into more profitable areas, like designing computer systems and managing them for clients (56% of revenue) and selling software (23%). Its financing division supplies the other 3%.
The company often uses acquisitions to enhance its expertise. In the three months ended March 31, 2012, it spent $1.4 billion buying smaller firms. It’s particularly interested in companies that specialize in analytics software, which helps businesses track consumer purchasing and other data.
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The company has long been known as a maker of mainframe computers. However, these products supplied just 18% of its revenue in 2011. That’s because IBM continues to expand into more profitable areas, like designing computer systems and managing them for clients (56% of revenue) and selling software (23%). Its financing division supplies the other 3%.
The company often uses acquisitions to enhance its expertise. In the three months ended March 31, 2012, it spent $1.4 billion buying smaller firms. It’s particularly interested in companies that specialize in analytics software, which helps businesses track consumer purchasing and other data.
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APPLE INC. $575 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 935.1 million; Market cap: $537.7 billion; Price-to-sales ratio: 3.8; Dividend yield: 1.8%; TSINetwork Rating: Average; www.apple.com) is now the largest publicly traded company in the world based on market cap, thanks to the huge success of its mobile devices, such as the iPhone smartphone and the iPad tablet computer. These products are also attracting more attention to Apple’s Mac desktop and laptop computers.
In its 2012 second quarter, which ended March 31, 2012, the company sold 11.8 million iPads, up 151.3% from a year earlier. iPhone sales jumped 88.0%, to 35.1 million units. That’s partly because the company recently signed new deals that let more Chinese wireless carriers sell the device.
Apple also sold 6.8% more Mac computers. However, sales of iPod music players fell 14.9%, as iPod users continued to upgrade to iPhones.
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In its 2012 second quarter, which ended March 31, 2012, the company sold 11.8 million iPads, up 151.3% from a year earlier. iPhone sales jumped 88.0%, to 35.1 million units. That’s partly because the company recently signed new deals that let more Chinese wireless carriers sell the device.
Apple also sold 6.8% more Mac computers. However, sales of iPod music players fell 14.9%, as iPod users continued to upgrade to iPhones.
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NCR CORP. $21 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 158.8 million; Market cap: $3.3 billion; Price-to-sales ratio: 0.6; No dividends paid; TSINetwork Rating: Average; www.ncr.com) has paid an undisclosed sum for three Brazilian firms that make cash registers and other point-of-sale equipment for restaurants.
These purchases should help NCR increase its share of this market, which is growing by 10% a year. Restaurant spending should also keep rising in Brazil, particularly because the country is hosting the 2014 FIFA World Cup and the 2016 Summer Olympics.
NCR is a buy.
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These purchases should help NCR increase its share of this market, which is growing by 10% a year. Restaurant spending should also keep rising in Brazil, particularly because the country is hosting the 2014 FIFA World Cup and the 2016 Summer Olympics.
NCR is a buy.
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INTERNATIONAL FLAVORS & FRAGRANCES INC. $54 (New York symbol IFF; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.1 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.iff.com) produces over 34,000 compounds that improve the taste of food and make consumer products smell better. It gets 75% of its sales from outside the U.S.
In the three months ended March 31, 2012, IFF’s sales fell 0.5%, to $710.6 million from $714.3 million a year earlier. Sales at the Fragrances division (which supplies 51% of IFF’s total sales) fell 4.0%, mainly because the company’s competitors cut their prices. That offset a 3.3% gain at the Flavors division (49% of sales). Earnings fell 3.6%, to $81.1 million, or $0.99 a share. A year earlier, the company earned $84.0 million, or $1.03 a share.
IFF is now conducting a strategic review of its Fragrances business. That could result in a number of changes, including the closure of some manufacturing plants or the sale of the entire division. It will take the company several months to complete its review.
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In the three months ended March 31, 2012, IFF’s sales fell 0.5%, to $710.6 million from $714.3 million a year earlier. Sales at the Fragrances division (which supplies 51% of IFF’s total sales) fell 4.0%, mainly because the company’s competitors cut their prices. That offset a 3.3% gain at the Flavors division (49% of sales). Earnings fell 3.6%, to $81.1 million, or $0.99 a share. A year earlier, the company earned $84.0 million, or $1.03 a share.
IFF is now conducting a strategic review of its Fragrances business. That could result in a number of changes, including the closure of some manufacturing plants or the sale of the entire division. It will take the company several months to complete its review.
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MCCORMICK & CO. INC. $59 (New York symbol MKC; Income Portfolio, Consumer sector; Shares outstanding: 120.1 million; Market cap: $7.1 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.1%; TSINetwork Rating: Average; www.mccormick.com) is the world’s leading maker of spices, herbs, seasonings, flavourings, sauces and extracts. It sells its products to consumers, restaurants and industrial food processors. Top brands include McCormick, Club House, Zatarain’s, Ducos and Schwartz.
The company is starting to benefit from its recent purchases of spice makers and food companies in India and Eastern Europe. Emerging markets now supply 14% of its sales. As well, its ongoing cost-cutting plan should save it $45 million in its current fiscal year.
In its fiscal 2012 second quarter, which ended May 31, 2012, McCormick’s sales rose 11.4%, to $984.0 million from $883.7 million a year earlier. Acquisitions accounted for about half of this gain. Earnings rose 9.2%, to $80.4 million, or $0.60 a share. A year earlier, McCormick earned $73.6 million, or $0.55 a share.
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The company is starting to benefit from its recent purchases of spice makers and food companies in India and Eastern Europe. Emerging markets now supply 14% of its sales. As well, its ongoing cost-cutting plan should save it $45 million in its current fiscal year.
In its fiscal 2012 second quarter, which ended May 31, 2012, McCormick’s sales rose 11.4%, to $984.0 million from $883.7 million a year earlier. Acquisitions accounted for about half of this gain. Earnings rose 9.2%, to $80.4 million, or $0.60 a share. A year earlier, McCormick earned $73.6 million, or $0.55 a share.
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GENERAL MILLS INC. $38 (New York symbol GIS, Conservative Growth Portfolio, Consumer sector; Shares outstanding: 647.3 million; Market cap: $24.6 billion; Priceto- sales ratio: 1.5; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.generalmills.com) reported that its sales in the fiscal year ended May 27, 2012 rose 11.9%, to $16.7 billion from $14.9 billion in 2011. That’s mainly due to last year’s purchase of 51% of the company that makes Yoplait yogurt. General Mills also raised the selling prices of its cereals, soups and other products.
Earnings in fiscal 2012 fell 12.8%, to $1.6 billion, or $2.35 a share. It earned $1.8 billion, or $2.70 a share, in fiscal 2011. If you exclude the costs to integrate Yoplait and other unusual items, earnings per share would have risen by 3.2%, to $2.56 from $2.48.
Like Tupperware (see left), General Mills is targeting overseas markets for growth; international operations now account for 25% of its sales and 14% of its earnings. That’s why it recently agreed to pay $990 million for Yoki Alimentos S.A., a Brazilian maker of snack foods and seasonings. The deal should close by the end of 2012.
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Earnings in fiscal 2012 fell 12.8%, to $1.6 billion, or $2.35 a share. It earned $1.8 billion, or $2.70 a share, in fiscal 2011. If you exclude the costs to integrate Yoplait and other unusual items, earnings per share would have risen by 3.2%, to $2.56 from $2.48.
Like Tupperware (see left), General Mills is targeting overseas markets for growth; international operations now account for 25% of its sales and 14% of its earnings. That’s why it recently agreed to pay $990 million for Yoki Alimentos S.A., a Brazilian maker of snack foods and seasonings. The deal should close by the end of 2012.
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TUPPERWARE BRANDS CORP. $54 (New York symbol TUP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 55.9 million; Market cap: $3.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.tupperwarebrands.com) gets 70% of its sales by making high-quality products for the home, including plastic food and beverage containers and children’s educational toys. The remaining 30% comes from its beauty-products division, which makes a wide range of cosmetics, bath oils and fragrances.
Markets beyond the U.S. supply 90% of the company’s sales. Its main brands include Tupperware, Armand Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare and Nuvo.
Tupperware prefers to sell its goods through independent dealers instead of retail stores. This helps keep its distribution and marketing costs down. As well, it pays its dealers commissions instead of salaries, so they have a greater incentive to promote Tupperware’s goods. That means the company rarely needs to use costly discounts to spur its sales.
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Markets beyond the U.S. supply 90% of the company’s sales. Its main brands include Tupperware, Armand Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare and Nuvo.
Tupperware prefers to sell its goods through independent dealers instead of retail stores. This helps keep its distribution and marketing costs down. As well, it pays its dealers commissions instead of salaries, so they have a greater incentive to promote Tupperware’s goods. That means the company rarely needs to use costly discounts to spur its sales.
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CARFINCO FINANCIAL GROUP $7.93 (Toronto symbol CFNI; TSINetwork Rating: Speculative) (1-888 -486-4356; www.carfinco.com; Shares outstanding: 24.6 million; Market cap: $195.1 million; Dividend yield: 5.3%) provides car loans to consumers who aren’t able to meet the criteria of traditional lenders, like banks.
Edmonton-based Carfinco started out by financing vehicle repairs in 1997. In 1999, it began providing loans for car and truck purchases. In January 2001, the company got out of the repair-financing business to focus solely on lending money to car buyers.
Carfinco converted from a conventional corporation to an income trust in 2004. It converted back to a corporation on January 1, 2012.
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Edmonton-based Carfinco started out by financing vehicle repairs in 1997. In 1999, it began providing loans for car and truck purchases. In January 2001, the company got out of the repair-financing business to focus solely on lending money to car buyers.
Carfinco converted from a conventional corporation to an income trust in 2004. It converted back to a corporation on January 1, 2012.
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MAJOR DRILLING $12.33 (Toronto symbol MDI; TSINetwork Rating: Speculative) (1-866- 264-3986; www.majordrilling.com; Shares outstanding: 79.1 million; Market cap: $982.2 million; Dividend yield: 1.2%) has moved down lately along with most mining and resource-related stocks. That’s because investors are concerned that a potential eurozone breakup, sluggish U.S. growth and a slowdown in China will hurt resource demand.
Even so, the company’s revenue rose 72.8% in the three months ended April 30, 2012, to a record $237.2 million from $137.3 million a year earlier. Earnings per share tripled, to $0.39 from $0.13.
Many of Major’s customers increased their drilling during the quarter, especially for gold, copper, coal and iron ore. Major raised its twice-yearly dividend by 12.5%, to $0.09 from $0.08, with the May 2012 payment. The stock now yields 1.5%.
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Even so, the company’s revenue rose 72.8% in the three months ended April 30, 2012, to a record $237.2 million from $137.3 million a year earlier. Earnings per share tripled, to $0.39 from $0.13.
Many of Major’s customers increased their drilling during the quarter, especially for gold, copper, coal and iron ore. Major raised its twice-yearly dividend by 12.5%, to $0.09 from $0.08, with the May 2012 payment. The stock now yields 1.5%.
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