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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DUNDEE REIT $37.67 (Toronto symbol D.UN; TSINetwork Rating: Speculative) (416-365-3535; www.dundeereit.com; Shares outstanding: 86.0 million; Market cap: $3.2 billion; Dividend yield: 5.8%) owns and manages 18.9 million square feet of office, industrial and retail space. The trust has a 95.6% occupancy rate. In the three months ended March 31, 2012, Dundee’s revenue jumped 64.9%, to $150.0 million from $91.0 million a year earlier. Most of the increase came from properties the trust recently purchased.
The best way to assess a real estate investment trust’s operating performance is to look at its cash flow, and Dundee’s cash flow rose 62.6% in the latest quarter, to $41.0 million from $25.2 million. Cash flow per unit rose 14.5%, to $0.63 from $0.55, due to more units outstanding (the trust issued new units to pay for the acquired properties).
Dundee’s growth-by-acquisition strategy adds risk, but it is diversifying outside western Canada. At the start of 2010, about 70% of its properties were in western Canada. That’s now down to less than 55%.
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The best way to assess a real estate investment trust’s operating performance is to look at its cash flow, and Dundee’s cash flow rose 62.6% in the latest quarter, to $41.0 million from $25.2 million. Cash flow per unit rose 14.5%, to $0.63 from $0.55, due to more units outstanding (the trust issued new units to pay for the acquired properties).
Dundee’s growth-by-acquisition strategy adds risk, but it is diversifying outside western Canada. At the start of 2010, about 70% of its properties were in western Canada. That’s now down to less than 55%.
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CHEMTRADE LOGISTICS INCOME FUND $15.05 (Toronto symbol CHE.UN; TSINetwork Rating: Speculative) (416-496-5856; www.chemtradelogistics.com; Units outstanding: 41.7 million; Market cap: $627.6 million; Dividend yield: 8.0%) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and base-metal processors. These companies create sulphur, acid and other by-products as part of their processing activities. Chemtrade converts these substances into useful chemicals, like sulphuric acid.
In the three months ended March 31, 2012, Chemtrade’s revenue rose 34.4%, to $227.9 million from $169.6 million. That mostly reflects the contribution of Marsulex Inc., which Chemtrade bought for $419.5 million in cash and stock in June 2011.
Cash flow rose 6.0%, to $27.5 million from $25.9 million. Cash flow per share fell 28.6%, to $0.66 from $0.84, on more shares outstanding from the Marsulex purchase.
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In the three months ended March 31, 2012, Chemtrade’s revenue rose 34.4%, to $227.9 million from $169.6 million. That mostly reflects the contribution of Marsulex Inc., which Chemtrade bought for $419.5 million in cash and stock in June 2011.
Cash flow rose 6.0%, to $27.5 million from $25.9 million. Cash flow per share fell 28.6%, to $0.66 from $0.84, on more shares outstanding from the Marsulex purchase.
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WESTJET AIRLINES $15.73 (Toronto symbol WJA; TSINetwork Rating: Extra Risk) (1-877-493-7853; www.westjet.com; Shares outstanding: 130.1 million; Market cap: $2.0 billion; Dividend yield: 1.5%) is upgrading its interline agreement with Korean Air to a full codesharing deal.
WestJet will now be able to sell seats on Korean Air flights. That will let WestJet serve more cities without having to add flights of its own.
Code-sharing agreements are especially valuable for attracting business passengers, because they let customers seamlessly connect between flights and gain frequent flyer points for the entire distance travelled.
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WestJet will now be able to sell seats on Korean Air flights. That will let WestJet serve more cities without having to add flights of its own.
Code-sharing agreements are especially valuable for attracting business passengers, because they let customers seamlessly connect between flights and gain frequent flyer points for the entire distance travelled.
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ADOBE SYSTEMS $31.99 (Nasdaq symbol ADBE; TSINetwork Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 496.1 million; Market cap: $15.9 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 its software to create print publications and web pages.
The company also makes Adobe Flash, which lets website developers make their pages more interactive by adding animation and video. Around 98% of the world’s computers have Flash installed on them.
Last year, Adobe stopped making Flash for smartphones and other mobile devices. Instead, it’s focusing on developing products that are based on the newer HTML5 Internet standard.
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The company also makes Adobe Flash, which lets website developers make their pages more interactive by adding animation and video. Around 98% of the world’s computers have Flash installed on them.
Last year, Adobe stopped making Flash for smartphones and other mobile devices. Instead, it’s focusing on developing products that are based on the newer HTML5 Internet standard.
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FAIR ISAAC CORP. $42.44 (New York symbol FICO; TSINetwork Rating: Average) (415-472-2211; www.fairisaac.com; Shares outstanding: 34.3 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.
In its fiscal 2012 second quarter, which ended March 31, 2012, Fair Isaac’s earnings per share excluding one-time items jumped 41.0%, to $0.55 from $0.39. The company’s ongoing cost cuts were a major reason for the increase. Sales rose 4.4%, to $159.5 million from $152.8 million.
Fair Isaac spends around 10% of its sales on research. That lets it keep producing innovative new products that help it stay ahead of its competitors.
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In its fiscal 2012 second quarter, which ended March 31, 2012, Fair Isaac’s earnings per share excluding one-time items jumped 41.0%, to $0.55 from $0.39. The company’s ongoing cost cuts were a major reason for the increase. Sales rose 4.4%, to $159.5 million from $152.8 million.
Fair Isaac spends around 10% of its sales on research. That lets it keep producing innovative new products that help it stay ahead of its competitors.
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We first recommended WAJAX CORP. $47.35 (Toronto symbol WJX; TSINetwork Rating: Extra Risk) (905-212-3300; www.wajax.ca; Shares outstanding:16.6 million; Market cap: $786.0 million; Dividend yield: 6.8%) in the May 2012 Stock Pickers Digest.
We thought the company had considerable hidden value. It’s not a household name, but its 117 dealerships across Canada sell to a range of customers in growing markets like mining, oil sands, pipelines and public infrastructure.
Wajax also trades at a low price-to-earnings ratio of 11.5, based on this year’s forecast profits, and its recent 35% dividend increase gives it a high 6.8% yield.
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We thought the company had considerable hidden value. It’s not a household name, but its 117 dealerships across Canada sell to a range of customers in growing markets like mining, oil sands, pipelines and public infrastructure.
Wajax also trades at a low price-to-earnings ratio of 11.5, based on this year’s forecast profits, and its recent 35% dividend increase gives it a high 6.8% yield.
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ALARMFORCE INDUSTRIES $9.19 (Toronto symbol AF; TSINetwork Rating: Speculative) (1-800-267-2001; www.alarmforce.com; Shares outstanding: 12.2 million; Market cap: $112.1 million; Dividend yield: 1.1%) sells two-way voice alarm systems and monitoring services in Canada and increasingly in the U.S. It’s also adding to its prospects with its VideoRelay system, which it launched in October 2011.
In the three months ended April 30, 2012, AlarmForce’s sales rose 10.2%, to a record $11.1 million from $10.1 million a year earlier. Even so, the company lost $0.02 a share, compared to a profit of $0.07 a share. Earnings fell because it increased its advertising spending as it expanded into Florida.
AlarmForce also invested more in VideoRelay, which lets subscribers watch their homes through computers and smartphones. Users can either view live video or receive alerts when the system detects motion. VideoRelay also lets you establish two-way voice communication through the camera, which could scare off burglars.
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In the three months ended April 30, 2012, AlarmForce’s sales rose 10.2%, to a record $11.1 million from $10.1 million a year earlier. Even so, the company lost $0.02 a share, compared to a profit of $0.07 a share. Earnings fell because it increased its advertising spending as it expanded into Florida.
AlarmForce also invested more in VideoRelay, which lets subscribers watch their homes through computers and smartphones. Users can either view live video or receive alerts when the system detects motion. VideoRelay also lets you establish two-way voice communication through the camera, which could scare off burglars.
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ALARMFORCE INDUSTRIES $9.19 (Toronto symbol AF; TSINetwork Rating: Speculative) (1-800-267-2001; www.alarmforce.com; Shares outstanding: 12.2 million; Market cap: $112.1 million; Dividend yield: 1.1%) sells two-way voice alarm systems and monitoring services in Canada and increasingly in the U.S. It’s also adding to its prospects with its VideoRelay system, which it launched in October 2011.
In the three months ended April 30, 2012, AlarmForce’s sales rose 10.2%, to a record $11.1 million from $10.1 million a year earlier. Even so, the company lost $0.02 a share, compared to a profit of $0.07 a share. Earnings fell because it increased its advertising spending as it expanded into Florida.
AlarmForce also invested more in VideoRelay, which lets subscribers watch their homes through computers and smartphones. Users can either view live video or receive alerts when the system detects motion. VideoRelay also lets you establish two-way voice communication through the camera, which could scare off burglars.
...
In the three months ended April 30, 2012, AlarmForce’s sales rose 10.2%, to a record $11.1 million from $10.1 million a year earlier. Even so, the company lost $0.02 a share, compared to a profit of $0.07 a share. Earnings fell because it increased its advertising spending as it expanded into Florida.
AlarmForce also invested more in VideoRelay, which lets subscribers watch their homes through computers and smartphones. Users can either view live video or receive alerts when the system detects motion. VideoRelay also lets you establish two-way voice communication through the camera, which could scare off burglars.
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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. This past week, one Inner Circle member requests Pat’s stock investing advice on a company that has a chance to profit from the growing global demand for clean water. One of the company’s biggest areas of growth could be in the highly-publicized area of “fracking” for oil and gas, where it has acquired a new water monitoring service. ...
Successful investors never “go for broke,” as the saying goes. Instead, they try to arrange their portfolios so that they profit more or less automatically over long periods. You do that by tapping into the long-term growth that inevitably comes to well-established companies when they operate in relatively free economies during relatively prosperous years and decades. To do this, start by following our three-part investing philosophy. First, invest mainly in well-established companies, since they tend to continue to prosper over long periods. Second, diversify across most if not all of the five main economic sectors. Third, downplay or avoid stocks in the broker/media limelight, where high investor expectations tend to expand risk....
