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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AGILENT TECHNOLOGIES INC. $41 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 348.0 million; Market cap: $14.3 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.0%; TSINetwork Rating: Average; www.agilent.com) makes testing systems that help improve electronic products, such as cellphones and computer equipment.
To cut its exposure to the cyclical electronics industry, Agilent is expanding its medical and drug-testing businesses, mainly through acquisitions. In May 2010, it paid $1.5 billion for Varian Inc., which makes testing equipment for medical research labs.
As well, the company recently announced that it will pay $2.2 billion for Dako, a Denmark-based firm that makes equipment that detects cancers in blood and other tissue samples. Thanks to deals like these, medical- and chemical-testing equipment now supplies half of Agilent’s overall sales.
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To cut its exposure to the cyclical electronics industry, Agilent is expanding its medical and drug-testing businesses, mainly through acquisitions. In May 2010, it paid $1.5 billion for Varian Inc., which makes testing equipment for medical research labs.
As well, the company recently announced that it will pay $2.2 billion for Dako, a Denmark-based firm that makes equipment that detects cancers in blood and other tissue samples. Thanks to deals like these, medical- and chemical-testing equipment now supplies half of Agilent’s overall sales.
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FRONTIER COMMUNICATIONS CORP. $3.50 (New York symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 998.5 million; Market cap: $1.2 billion; Price-to-sales ratio: 0.6; Dividend yield: 11.4%; TSINetwork Rating: Average; www.frontier.com) earned $52.5 million in three months ended March 31, 2012, down 4.0% from $54.7 million a year earlier. Earnings per share were unchanged at $0.05 on fewer shares outstanding. These figures exclude costs related to Frontier’s July 2010 purchase of traditional phone (or land line) accounts from Verizon. Revenue fell 5.8%, to $1.3 billion from $1.35 billion. That’s because Frontier continues to lose residential (down 9.2%) and business (down 5.7%) customers.
However, the $0.10-a-share quarterly dividend still seems safe: the payout accounted for a moderate 39% of Frontier’s free cash flow (cash flow less capital expenditures) in the latest quarter.
Frontier Communications is still a hold.
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However, the $0.10-a-share quarterly dividend still seems safe: the payout accounted for a moderate 39% of Frontier’s free cash flow (cash flow less capital expenditures) in the latest quarter.
Frontier Communications is still a hold.
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KRAFT FOODS INC. $38 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.8 billion; Market cap: $64.8 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.1%; TSINetwork Rating: Above Average; www.kraft.com) plans to break itself into two separate, publicly traded companies by the end of 2012.
One company, called Mondelez International, will sell snack foods, such as Oreo cookies and Cadbury chocolates. The other, called Kraft Foods Group, will consist of Kraft’s slower-growing grocery business.
Kraft hasn’t announced the details of the split, but the Internal Revenue Service has confirmed that the break-up will be a tax-free transaction: shareholders won’t have to pay capital gains taxes until they sell their new shares.
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One company, called Mondelez International, will sell snack foods, such as Oreo cookies and Cadbury chocolates. The other, called Kraft Foods Group, will consist of Kraft’s slower-growing grocery business.
Kraft hasn’t announced the details of the split, but the Internal Revenue Service has confirmed that the break-up will be a tax-free transaction: shareholders won’t have to pay capital gains taxes until they sell their new shares.
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NORDSTROM INC. $50 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 208.6 million; Market cap: $10.4 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.0%; TSINetwork Rating: Average; www.nordstrom.com) continues to add new Nordstrom Rack stores, which sell clearance merchandise from the company’s regular stores. That helps it attract cost-conscious shoppers.
The new stores increased sales by 13.2% in the quarter ended April 28, 2012, to $2.6 billion from $2.3 billion a year earlier. Same-store sales rose 8.5%.
Earnings rose at a slower pace of 2.8%, to $149 million from $145 million. Per-share earnings rose 7.7%, to $0.70 from $0.65, on fewer shares outstanding. Nordstrom’s profit margins fell because it introduced new loyalty programs and free shipping to compete with other retailers.
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The new stores increased sales by 13.2% in the quarter ended April 28, 2012, to $2.6 billion from $2.3 billion a year earlier. Same-store sales rose 8.5%.
Earnings rose at a slower pace of 2.8%, to $149 million from $145 million. Per-share earnings rose 7.7%, to $0.70 from $0.65, on fewer shares outstanding. Nordstrom’s profit margins fell because it introduced new loyalty programs and free shipping to compete with other retailers.
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J.P. MORGAN CHASE & CO. $34 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.8 billion; Market cap: $129.2 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.5%; TSINetwork Rating: Average; www.jpmorganchase.com) recently announced a $2-billion loss on complex hedging contracts that it uses to cut the risk on corporate bonds it holds.
This unexpected trading loss has prompted the bank to suspend its plan to repurchase $15 billion of its shares by March 31, 2013. However, it will continue to pay a quarterly dividend of $0.30 a share, for an annualized yield of 3.5%.
J.P. Morgan Chase is still a hold.
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This unexpected trading loss has prompted the bank to suspend its plan to repurchase $15 billion of its shares by March 31, 2013. However, it will continue to pay a quarterly dividend of $0.30 a share, for an annualized yield of 3.5%.
J.P. Morgan Chase is still a hold.
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CEDAR FAIR L.P. $26 (New York symbol FUN; Income Portfolio, Consumer sector; Units outstanding: 55.5 million; Market cap: $1.4 billion; Priceto- sales ratio: 1.4; Dividend yield: 6.2%; TSINetwork Rating: Average; www.cedarfair.com) owns 11 amusement parks, seven water parks and one hotel.
The partnership typically earns most of its money in the summer, as only one of its parks (Knott’s Berry Farm in Southern California) stays open year round. Still, Cedar Fair’s revenue rose 4.9% in the first quarter of 2012, to $28.2 million from $26.7 million a year earlier. Its loss narrowed to $65.2 million, or $1.18 a unit, from $84.7 million, or $1.53 a unit.
Cedar Fair keeps upgrading its parks: it will spend $90 million on new roller coasters and other attractions in 2012. That’s similar to what it spent in 2011.
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The partnership typically earns most of its money in the summer, as only one of its parks (Knott’s Berry Farm in Southern California) stays open year round. Still, Cedar Fair’s revenue rose 4.9% in the first quarter of 2012, to $28.2 million from $26.7 million a year earlier. Its loss narrowed to $65.2 million, or $1.18 a unit, from $84.7 million, or $1.53 a unit.
Cedar Fair keeps upgrading its parks: it will spend $90 million on new roller coasters and other attractions in 2012. That’s similar to what it spent in 2011.
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BUCKEYE PARTNERS L.P. $48 (New York symbol BPL; Income Portfolio, Utilities sector; Units outstanding: 97.8 million; Market cap: $4.7 billion; Price-to-sales ratio: 1.0; Dividend yield: 8.6%; TSINetwork Rating: Average; www.buckeye.com) operates over 9,600 kilometres of pipelines in the northeastern and midwestern U.S. Its network pumps gasoline, jet fuel and other petroleum products. Buckeye also owns oil and natural gas storage terminals and other related businesses.
The partnership continues to expand by acquisition. In February 2012, it agreed to buy a terminal in New York Harbour. That gives it access to the Atlantic Ocean, which makes it easier for Buckeye to import oil from foreign producers. From there, it can pump the oil through its pipelines to its customers.
Buckeye will pay $260 million for this terminal when the purchase closes later this year. It recently sold $250 million of new units to cover most of this cost.
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The partnership continues to expand by acquisition. In February 2012, it agreed to buy a terminal in New York Harbour. That gives it access to the Atlantic Ocean, which makes it easier for Buckeye to import oil from foreign producers. From there, it can pump the oil through its pipelines to its customers.
Buckeye will pay $260 million for this terminal when the purchase closes later this year. It recently sold $250 million of new units to cover most of this cost.
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WEYERHAEUSER CO. $20 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 537.5 million; Market cap: $10.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.0%; TSINetwork Rating: Extra Risk; www.weyerhaeuser.com) is a leading maker of forest products, including paper and packaging. The company owns or leases over 20.3 million acres of timberland in the U.S. and Canada.
In 2010, Weyerhaeuser converted to a real estate investment trust (REIT). REITs pay little or no income tax, and must pay 90% of their earnings to their shareholders as dividends. Right now, Weyerhaeuser pays a regular quarterly dividend of $0.15 a share, for a 3.0% annualized yield.
The company continues to sell less profitable assets: in 2011, it sold $838 million of real estate.
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In 2010, Weyerhaeuser converted to a real estate investment trust (REIT). REITs pay little or no income tax, and must pay 90% of their earnings to their shareholders as dividends. Right now, Weyerhaeuser pays a regular quarterly dividend of $0.15 a share, for a 3.0% annualized yield.
The company continues to sell less profitable assets: in 2011, it sold $838 million of real estate.
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GOOGLE INC. $609 (Nasdaq symbol GOOG; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 326.0 million; Market cap: $198.5 billion; Price-to-sales ratio: 4.9; No dividends paid; TSINetwork Rating: Above Average; www.google.com) has completed its $12.5-billion purchase of cellphone maker Motorola Mobility Holdings Inc. (New York symbol MMI).
Owning Motorola gives Google access to patents that it can use to defend itself against lawsuits from other mobile phone makers. It will also make it easier for Google to integrate its popular Android operating system with new smartphones and tablet computers.
Google is a buy.
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Owning Motorola gives Google access to patents that it can use to defend itself against lawsuits from other mobile phone makers. It will also make it easier for Google to integrate its popular Android operating system with new smartphones and tablet computers.
Google is a buy.
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XEROX CORP. $7.19 (New York symbol XRX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.4 billion; Market cap: $10.1 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.4%; TSINetwork Rating: Average; www.xerox.com) recently started providing services to businesses, such as processing credit card applications and insurance claims. That’s helping the company lower its reliance on more cyclical sales of office equipment, like copiers and printers.
In the three months ended March 31, 2012, Xerox’s revenue rose 0.7%, to $5.50 billion from $5.47 billion a year earlier. However, ongoing investments to expand its services operations cut its earnings by 4.5%, to $319 million from $334 million a year earlier. Earnings per share were unchanged at $0.23.
Xerox is a hold.
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In the three months ended March 31, 2012, Xerox’s revenue rose 0.7%, to $5.50 billion from $5.47 billion a year earlier. However, ongoing investments to expand its services operations cut its earnings by 4.5%, to $319 million from $334 million a year earlier. Earnings per share were unchanged at $0.23.
Xerox is a hold.
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