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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CHIPOTLE MEXICAN GRILL $375.73 (New York symbol CMG; TSINetwork Rating: Speculative) (303-595-4000; www.chipotle.com; Shares outstanding: 31.3 million; Market cap: $11.8 billion; No dividends paid) reported 23.7% higher sales in the three months ended December 31, 2011, to $596.7 million from $482.5 million a year earlier. Earnings rose 23.2%, to $1.81 a share from $1.47 a share.
The company will open 155 to 165 new restaurants in 2012. That will push up its sales. However, rising food costs will keep putting pressure on its profit margins. It’s uncertain if Chipotle can further raise its prices to offset those increases.
Chipotle trades at nearly 46 times its forecast earnings for this year. That’s a high ratio that leaves the stock vulnerable if it runs into any short-term problems. Still, it’s a well-established chain with a growing following, especially among health-conscious, environmentally aware baby boomers.
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The company will open 155 to 165 new restaurants in 2012. That will push up its sales. However, rising food costs will keep putting pressure on its profit margins. It’s uncertain if Chipotle can further raise its prices to offset those increases.
Chipotle trades at nearly 46 times its forecast earnings for this year. That’s a high ratio that leaves the stock vulnerable if it runs into any short-term problems. Still, it’s a well-established chain with a growing following, especially among health-conscious, environmentally aware baby boomers.
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AMAZON.COM $184.47 (Nasdaq symbol AMZN; TSINetwork Rating: Extra Risk) (206-266-1000; www.amazon.com; Shares outstanding: 454.8 million; Market cap: $83.9 billion; No dividends paid) is a major online retailer. Books, music and videos make up about 40% of its sales. Other products, including electronics, computer games and toys, make up the other 60%. Amazon Marketplace lets other companies sell their products through Amazon’s websites.
In the three months ended December 31, 2011, Amazon’s earnings fell 57.5%, to $177 million, or $0.39 a share. A year earlier, it earned $416 million, or $0.93 a share. The decline came despite a 34.6% jump in sales, to $17.4 billion from $12.9 billion.
During the quarter, the company spent $862 million on “technology and content,” up 66.1% from $519 million a year earlier. That was the main reason for the lower earnings. This additional spending included investments in new models of its Kindle electronic book reader, including the Kindle Fire tablet computer.
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In the three months ended December 31, 2011, Amazon’s earnings fell 57.5%, to $177 million, or $0.39 a share. A year earlier, it earned $416 million, or $0.93 a share. The decline came despite a 34.6% jump in sales, to $17.4 billion from $12.9 billion.
During the quarter, the company spent $862 million on “technology and content,” up 66.1% from $519 million a year earlier. That was the main reason for the lower earnings. This additional spending included investments in new models of its Kindle electronic book reader, including the Kindle Fire tablet computer.
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WYNDHAM WORLDWIDE $42.99 (New York symbol WYN; TSINetwork Rating: Extra Risk) (973-753-6000; www.wyndhamworldwide.com; Shares outstanding: 154.0 million; Market cap: $6.6 billion; Dividend yield: 2.1%) is one of the world’s largest hospitality companies, with 7,205 franchised hotels worldwide. Aside from Wyndham and Ramada, it owns a variety of other brands, including Days Inn, Super 8, Wingate, Baymont Inn & Suites, Microtel Inns & Suites, Hawthorn Suites, Howard Johnson, Travelodge and AmeriHost Inn. In addition to hotels, Wyndham manages vacation resorts, rental properties, luxury clubs and time-shares. Wyndham now has 100,000 vacation rental properties worldwide. This wide range of operations gives the company more consistent cash flow than most of its competitors, which mainly focus on hotels.
In the three months ended December 31, 2011, Wyndham’s revenue rose 6.7%, to $1.0 billion from $937.0 million. The company gets most of its revenue from vacation rather than business travel, and vacation bookings rose in the latest quarter. That helped push up Wyndham’s occupancy rate by 3.8%.
Before one-time items, earnings rose 2.2%, to $0.47 a share from $0.46. Wyndham continues to buy back its shares. In the latest quarter, it repurchased 6.7 million shares for $225 million. In all of 2011, it bought back 28.7 million shares for $902 million. The company has also raised its quarterly dividend by 53.3%, to $0.23 from $0.15. It now yields 2.1%.
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In the three months ended December 31, 2011, Wyndham’s revenue rose 6.7%, to $1.0 billion from $937.0 million. The company gets most of its revenue from vacation rather than business travel, and vacation bookings rose in the latest quarter. That helped push up Wyndham’s occupancy rate by 3.8%.
Before one-time items, earnings rose 2.2%, to $0.47 a share from $0.46. Wyndham continues to buy back its shares. In the latest quarter, it repurchased 6.7 million shares for $225 million. In all of 2011, it bought back 28.7 million shares for $902 million. The company has also raised its quarterly dividend by 53.3%, to $0.23 from $0.15. It now yields 2.1%.
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FORTRESS PAPER $36.77 (Toronto symbol FTP; TSINetwork Rating: Extra Risk) (1-888-820-3888; www.fortresspaper.com; Shares outstanding: 14.3 million; Market cap: $525.8 million; No dividends paid) just bought Domtar Corp.’s old pulp mill in Lebel-sur-Quevillon, Quebec. The company plans to convert the mill to produce a type of cellulose called dissolving pulp, which is used to make rayon fabrics.
Fortress is buying the plant for a nominal amount of $1, but it will commit to spending $222 million on the conversion, which should be finished in mid-2013. The Quebec government will grant the company a 10-year, $132.4-million loan to help finance the plant.
Fortress’s outlook is positive, and the new dissolving pulp plant should make a big contribution to its earnings.
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Fortress is buying the plant for a nominal amount of $1, but it will commit to spending $222 million on the conversion, which should be finished in mid-2013. The Quebec government will grant the company a 10-year, $132.4-million loan to help finance the plant.
Fortress’s outlook is positive, and the new dissolving pulp plant should make a big contribution to its earnings.
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ALARMFORCE INDUSTRIES $9.59 (Toronto symbol AF; TSINetwork Rating: Speculative) (1-800-267-2001; www.alarmforce.com; Shares outstanding: 12.2 million; Market cap: $117.0 million; No dividends paid) sells two-way voice alarm systems and monitoring services in Canada and the U.S.
AlarmForce’s system differs from others because it lets operators verify an alarm by establishing immediate two-way voice contact with homeowners. It then dispatches security personnel. If intruders are present, the two-way contact can scare them off.
The company has used radio and TV advertising to gain a high profile. It gives its system away to gain new subscribers. Users then sign a three-year contract to pay $25 a month for monitoring service.
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AlarmForce’s system differs from others because it lets operators verify an alarm by establishing immediate two-way voice contact with homeowners. It then dispatches security personnel. If intruders are present, the two-way contact can scare them off.
The company has used radio and TV advertising to gain a high profile. It gives its system away to gain new subscribers. Users then sign a three-year contract to pay $25 a month for monitoring service.
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CALIAN TECHNOLOGIES $18.90 (Toronto symbol CTY; TSINetwork Rating: Speculative) (613-599-8600; www.calian.com; Shares outstanding: 7.6 million; Market cap: $143.6 million; Dividend yield: 5.5%) operates in two areas: the business and technology services division (which supplies 70% of Calian’s revenue) provides engineers, health care workers and other skilled professionals to clients on a contract basis. The systems engineering division (30% of revenue) sells hardware and software for testing, operating and managing satellite and other communication systems.
In the three months ended December 31, 2011, Calian’s revenue rose 6.7%, to $56.8 million from $53.3 million a year earlier. Earnings rose 14.4%, to $3.6 million, or $0.47 a share, from $3.1 million, or $0.41 a share.
Sales rose at the systems engineering division, partly due to an increase in U.S. military orders. The business and technology services division also saw continued strong demand. Calian’s backlog now stands at $665 million, with contracts running to 2018.
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In the three months ended December 31, 2011, Calian’s revenue rose 6.7%, to $56.8 million from $53.3 million a year earlier. Earnings rose 14.4%, to $3.6 million, or $0.47 a share, from $3.1 million, or $0.41 a share.
Sales rose at the systems engineering division, partly due to an increase in U.S. military orders. The business and technology services division also saw continued strong demand. Calian’s backlog now stands at $665 million, with contracts running to 2018.
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FAIRFAX FINANCIAL HOLDINGS $417.01 (Toronto symbol FFH: TSINetwork Rating: Average) (416-367-2612; www.fairfax.ca; Shares outstanding: 19.9 million; Market cap: $8.3 billion; Dividend yield: 2.4%) now owns 5.12% of Research in Motion, symbol RIM on Toronto. RIM is a recommendation of our Successful Investor newsletter.
RIM has appointed Thorsten Heins as its new chief executive officer and a director of the company. Previously, he was RIM’s chief operating officer. The company’s founders and former co-CEOs, Jim Balsillie and Mike Lazaridis, will remain directors.
As well, the company has appointed Prem Watsa as a director. Mr. Watsa is the chairman and founder of Fairfax Financial Holdings.
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RIM has appointed Thorsten Heins as its new chief executive officer and a director of the company. Previously, he was RIM’s chief operating officer. The company’s founders and former co-CEOs, Jim Balsillie and Mike Lazaridis, will remain directors.
As well, the company has appointed Prem Watsa as a director. Mr. Watsa is the chairman and founder of Fairfax Financial Holdings.
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FAIR ISAAC CORP. $38.98 (New York symbol FICO; TSINetwork Rating: Average) (415-472-2211; www.fairisaac.com; Shares outstanding: 36.0 million; Market cap: $1.4 billion; Dividend yield: 0.2%) makes FICO Scores, which dominates the market for software that helps businesses 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 first quarter, which ended December 31, 2011, Fair Isaac’s earnings jumped 87.4%, to $30.0 million from $16.0 million a year earlier. Earnings per share rose 107.5% to $0.83 from $0.40, on fewer shares outstanding. The latest earnings also beat the consensus estimate of $0.62 a share.
Savings from the company’s ongoing cost cuts were a big reason for the increase. Sales rose 9.2%, to $170.3 million from $155.9 million.
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In its fiscal 2012 first quarter, which ended December 31, 2011, Fair Isaac’s earnings jumped 87.4%, to $30.0 million from $16.0 million a year earlier. Earnings per share rose 107.5% to $0.83 from $0.40, on fewer shares outstanding. The latest earnings also beat the consensus estimate of $0.62 a share.
Savings from the company’s ongoing cost cuts were a big reason for the increase. Sales rose 9.2%, to $170.3 million from $155.9 million.
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ADOBE SYSTEMS $32.46 (Nasdaq symbol ADBE; TSINetwork Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 493.8 million; Market cap: $16.0 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.
Adobe recently stopped making Flash for smartphones and other mobile devices. Instead, it will focus 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.
Adobe recently stopped making Flash for smartphones and other mobile devices. Instead, it will focus on developing products that are based on the newer HTML5 Internet standard.
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Even though we recommend mostly aggressive stocks in Stock Pickers Digest, we still manage to pick a large number that get taken over at high profits for our readers.
Mosaid Inc. was our second-most-recent winner, with a $46-ashare offer from Sterling Partners. That gave us a 107.2% gain in the 18 months from our first recommendation in May 2010.
Our latest pick to attract a takeover at a high profit to our subscribers is RuggedCom $33, symbol RCM on Toronto.
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Mosaid Inc. was our second-most-recent winner, with a $46-ashare offer from Sterling Partners. That gave us a 107.2% gain in the 18 months from our first recommendation in May 2010.
Our latest pick to attract a takeover at a high profit to our subscribers is RuggedCom $33, symbol RCM on Toronto.
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