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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MICROSOFT CORP. $32 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.4 billion; Market cap: $268.8 billion; Price-to-sales ratio: 3.7; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.microsoft.com) is paying $1.1 billion for 925 patents held by AOL Inc. (New York symbol AOL). It will also license another 300 patents from AOL. Microsoft held cash of $59.5 billion, or $7.09 a share, on March 31, 2012, so it can easily afford this purchase.
After the sale closes in the next few weeks, Microsoft will then sell 650 of AOL’s patents to social network operator Facebook Inc. for $550 million. As part of the deal, Microsoft will retain a licence on these patents.
AOL’s patents cover Internet communications technologies such as email and instant messaging. Controlling them will help Microsoft defend itself in future patent disputes. The patents will also let the company charge higher licensing fees to smartphone makers.
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After the sale closes in the next few weeks, Microsoft will then sell 650 of AOL’s patents to social network operator Facebook Inc. for $550 million. As part of the deal, Microsoft will retain a licence on these patents.
AOL’s patents cover Internet communications technologies such as email and instant messaging. Controlling them will help Microsoft defend itself in future patent disputes. The patents will also let the company charge higher licensing fees to smartphone makers.
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INTERNATIONAL BUSINESS MACHINES CORP. $204 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.2 billion; Market cap: $244.8 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.ibm.com) continues to expand its analytics operations, which make software that helps businesses and governments quickly gather and analyze a wide range of data.
The company recently paid an undisclosed sum for Toronto-based Varicent Software Inc. Over 180 banks, insurance companies and retailers use Varicent’s products to manage employee salaries and bonuses paid to salespeople.
IBM is our #1 buy for 2012.
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The company recently paid an undisclosed sum for Toronto-based Varicent Software Inc. Over 180 banks, insurance companies and retailers use Varicent’s products to manage employee salaries and bonuses paid to salespeople.
IBM is our #1 buy for 2012.
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INVACARE CORP. $16 (New York symbol IVC; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 32.9 million; Market cap: $526.4 million; Price-to-sales ratio: 0.3; Dividend yield: 0.3%; TSINetwork Rating: Average; www.invacare.com) makes mobility and home-care products, including wheelchairs and motorized scooters.
The stock is down 54% from its July 2011 peak of $35. That’s mainly due to production problems at its wheelchair plant in Elyria, Ohio.
On previous inspections, the Food and Drug Administration (FDA) found that this plant violated some of its regulations. However, these violations are not related to the safety or performance of Invacare’s products.
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The stock is down 54% from its July 2011 peak of $35. That’s mainly due to production problems at its wheelchair plant in Elyria, Ohio.
On previous inspections, the Food and Drug Administration (FDA) found that this plant violated some of its regulations. However, these violations are not related to the safety or performance of Invacare’s products.
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C.R. BARD INC. $97 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 84.8 million; Market cap: $8.2 billion; Price-to-sales ratio: 2.8; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.crbard.com) makes medical devices in four main areas: vascular products, such as stents and catheters (29% of 2011 sales); oncology products that detect and treat various types of cancer (27%); urology products, such as drainage and incontinence devices (25%); surgical tools (16%); and other medical products (3%).
Bard continues to expand its market share and diversify its product line with acquisitions. In 2011, it spent a total of $622.6 million buying three medical device makers. The company tends to focus on smaller companies with unique products. That cuts the risk of using acquisitions to expand.
Bard also aims to spur its long-term growth by developing new products. It launched over 50 new products in 2011.
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Bard continues to expand its market share and diversify its product line with acquisitions. In 2011, it spent a total of $622.6 million buying three medical device makers. The company tends to focus on smaller companies with unique products. That cuts the risk of using acquisitions to expand.
Bard also aims to spur its long-term growth by developing new products. It launched over 50 new products in 2011.
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BAXTER INTERNATIONAL INC. $55 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 556.3 million; Market cap: $30.6 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.4%; TSINetwork Rating: Average; www.baxter.com) makes medical products, such as intravenous pumps and kidney dialysis equipment. It also makes vaccines and drugs. Half of the company’s sales come from single-use products that continually need to be reordered.
Baxter earned $569 million in the first quarter of 2012. That’s down 0.2% from $570 million a year earlier. The company spent $575 million on share buybacks during the quarter. Because of fewer shares outstanding, earnings per share rose 3.1%, to $1.01 from $0.98.
These figures exclude several unusual items, such as costs to integrate Synovis Life Technologies Inc., which Baxter recently bought for $325 million. Synovis makes surgical tools and bandages.
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Baxter earned $569 million in the first quarter of 2012. That’s down 0.2% from $570 million a year earlier. The company spent $575 million on share buybacks during the quarter. Because of fewer shares outstanding, earnings per share rose 3.1%, to $1.01 from $0.98.
These figures exclude several unusual items, such as costs to integrate Synovis Life Technologies Inc., which Baxter recently bought for $325 million. Synovis makes surgical tools and bandages.
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WAL-MART STORES INC. $57 (New York symbol WMT; Conservative Growth Portfolio: Consumer sector; Shares outstanding: 3.4 billion; Market cap: $193.8 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.walmart.com) fell 8% recently after it admitted that it is investigating allegations that executives of its 69%-owned Mexican subsidiary paid bribes to local officials in 2005 to speed up the construction of new stores.
U.S. companies are prohibited from bribing foreign officials under the 1977 Foreign Corrupt Practices Act.
Wal-Mart is fully cooperating with American and Mexican authorities. This should limit any possible fines it may have to pay. The company has also strengthened its internal accounting controls to make sure all of its overseas businesses comply with the anti-bribery law.
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U.S. companies are prohibited from bribing foreign officials under the 1977 Foreign Corrupt Practices Act.
Wal-Mart is fully cooperating with American and Mexican authorities. This should limit any possible fines it may have to pay. The company has also strengthened its internal accounting controls to make sure all of its overseas businesses comply with the anti-bribery law.
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PFIZER INC. $23 (New York symbol PFE; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 7.5 billion; Market cap: $172.5 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.pfizer.com) is the world’s largest pharmaceutical drug maker. Its top-selling brands include Lipitor (for high cholesterol), Lyrica (epilepsy), Celebrex (arthritis pain), Viagra (erectile dysfunction), Xalatan (glaucoma), Norvasc (hypertension) and Zyvox (bacterial infections). The company is also the world’s fifth-largest maker of over-the-counter drugs. Its major brands include Advil (pain relief), Centrum (vitamins) and Robitussin (cough syrup).
Pfizer gets about a third of its revenue by selling its products to drug wholesalers. The other two-thirds come from direct sales to retailers, hospitals, clinics and government agencies. Overseas markets supply 60% of its revenue.
Pfizer gets about a third of its revenue by selling its products to drug wholesalers. The other two-thirds come from direct sales to retailers, hospitals, clinics and government agencies. Overseas markets supply 60% of its revenue.
Acquisitions added top-selling drugs
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This week, an Inner Circle member wanted Pat’s opinion on the one of the world’s largest drug stocks. The leading maker of generic drugs,
ENERFLEX LTD., $11.28 (Toronto symbol EFX; TSINetwork Rating: Extra Risk) (403-387-6377; www.enerflex.com; Shares outstanding: 77.4 million; Market cap: $873.1 million; Dividend yield: 2.1%) rents and sells equipment and services for natural gas production, including compression and processing plants, refrigeration equipment and power generators.
In the quarter ended December 31, 2011, Enerflex’s revenue rose 10.4%, to $383.8 million from $347.6 million a year ago. The company gets 28% of its revenue from stable, recurring sales of parts and services.
Without one-time items, earnings per share doubled, to $0.22 from $0.11, due to the higher revenue and improved profit margins. Enerflex’s long-term debt of $119.0 million is just 13.7% of its market cap.
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In the quarter ended December 31, 2011, Enerflex’s revenue rose 10.4%, to $383.8 million from $347.6 million a year ago. The company gets 28% of its revenue from stable, recurring sales of parts and services.
Without one-time items, earnings per share doubled, to $0.22 from $0.11, due to the higher revenue and improved profit margins. Enerflex’s long-term debt of $119.0 million is just 13.7% of its market cap.
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TOROMONT INDUSTRIES LTD. $22.42 (Toronto symbol TIH; TSINetwork Rating: Extra Risk) (416-667-5511; www.toromont.com; Shares outstanding: 76.8 million; Market cap: $1.7 billion; Dividend yield: 2.1%) distributes a broad range of industrial equipment, including machinery made by Caterpillar Inc. Toromont also makes refrigeration systems through its CIMCO division.
In July 2011, the company completed the spinoff of Enerflex Ltd. (see right). Shareholders received shares of the new Toromont and shares of Enerflex. That company leases and sells equipment and services for natural gas production, including field production plants and compression and processing plants.
In the three months ended December 31, 2011, higher equipment sales and rentals pushed up Toromont’s revenue by 19.1%, to $408.4 million from $342.9 million a year earlier. Without one-time items, earnings per share rose 22.2% to $0.44 from $0.36, on the higher revenue and improved profit margins.
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In July 2011, the company completed the spinoff of Enerflex Ltd. (see right). Shareholders received shares of the new Toromont and shares of Enerflex. That company leases and sells equipment and services for natural gas production, including field production plants and compression and processing plants.
In the three months ended December 31, 2011, higher equipment sales and rentals pushed up Toromont’s revenue by 19.1%, to $408.4 million from $342.9 million a year earlier. Without one-time items, earnings per share rose 22.2% to $0.44 from $0.36, on the higher revenue and improved profit margins.
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