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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SARA LEE CORP. $18 (New York symbol SLE;
Conservative Growth Portfolio, Consumer sector; Shares outstanding: 590.7 million; Market cap: $10.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.saralee.com) announced in January 2011 that it would break itself into two separate, publicly traded companies.
One firm will consist of Sara Lee’s international coffee and tea businesses. The other will focus on its North American packaged meat operations. The company aims to complete the breakup by the end of fiscal 2012 (fiscal years end June 30). It will also pay a special dividend of $3.00 a share before the split.
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Conservative Growth Portfolio, Consumer sector; Shares outstanding: 590.7 million; Market cap: $10.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.saralee.com) announced in January 2011 that it would break itself into two separate, publicly traded companies.
One firm will consist of Sara Lee’s international coffee and tea businesses. The other will focus on its North American packaged meat operations. The company aims to complete the breakup by the end of fiscal 2012 (fiscal years end June 30). It will also pay a special dividend of $3.00 a share before the split.
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MCGRAW-HILL COMPANIES INC. $42 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 293.4 million; Market cap: $12.3 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.4%; TSINetwork Rating: Average; www.mcgraw-hill.com) announced in September 2011 that it will split into two separate, publicly traded companies.
One of these new firms, McGraw-Hill Markets, will sell a variety of financial-information products. This business will include Standard & Poor’s, which provides credit ratings on bonds, and McGraw-Hill’s J.D. Power market-research firm. McGraw-Hill Markets will have annual revenue of $4 billion. International sales will account for 40% of that total.
The other company, McGraw-Hill Education, will publish textbooks for schools and colleges. This business will have $2.4 billion of annual revenue.
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One of these new firms, McGraw-Hill Markets, will sell a variety of financial-information products. This business will include Standard & Poor’s, which provides credit ratings on bonds, and McGraw-Hill’s J.D. Power market-research firm. McGraw-Hill Markets will have annual revenue of $4 billion. International sales will account for 40% of that total.
The other company, McGraw-Hill Education, will publish textbooks for schools and colleges. This business will have $2.4 billion of annual revenue.
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KRAFT FOODS INC. $36 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.8 billion; Market cap: $64.8 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.kraft.com) plans to break itself into two separate, publicly traded companies by the end of 2012.
One company will sell snack foods, such as Oreo cookies, Cadbury chocolates, Trident gum and Tang powdered beverages. This business will have annual sales of $32 billion, with 42% of that coming from developing markets, such as China, Brazil and India.
The other company will consist of Kraft’s slower-growing grocery-products business, which mainly sells its foods in North American supermarkets. These products include Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Jell-O desserts and Miracle Whip salad dressing. This company will have $16 billion of annual sales.
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One company will sell snack foods, such as Oreo cookies, Cadbury chocolates, Trident gum and Tang powdered beverages. This business will have annual sales of $32 billion, with 42% of that coming from developing markets, such as China, Brazil and India.
The other company will consist of Kraft’s slower-growing grocery-products business, which mainly sells its foods in North American supermarkets. These products include Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Jell-O desserts and Miracle Whip salad dressing. This company will have $16 billion of annual sales.
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INTEL CORP. $23 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.1 billion; Market cap: $117.3 billion; Price-to-sales ratio: 2.3; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.intel.com) warned that its revenue in the fourth quarter of 2011 will fall to $13.7 billion, down from its earlier forecast of $14.7 billion.
Factories in Thailand produce half of the world’s computer hard drives, and flooding in that country has led to shortages. As a result, computer makers have cut production and are ordering fewer chips from Intel.
Chip sales should rise over the next few months as hard-drive production returns to normal. As well, the shortage will not affect demand for Intel’s more-profitable server chips. Moreover, Intel gets 57% of its revenue from fast-growing markets in Asia, and just 13% from Europe.
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Factories in Thailand produce half of the world’s computer hard drives, and flooding in that country has led to shortages. As a result, computer makers have cut production and are ordering fewer chips from Intel.
Chip sales should rise over the next few months as hard-drive production returns to normal. As well, the shortage will not affect demand for Intel’s more-profitable server chips. Moreover, Intel gets 57% of its revenue from fast-growing markets in Asia, and just 13% from Europe.
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NEWMONT MINING CORP. $61 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 494.8 million; Market cap: $30.2 billion; Price-to-sales ratio: 3.3; Dividend yield: 2.3%; TSINetwork Rating: Average; www.newmont.com) is one of the world’s largest gold-mining companies. It has major mines in the U.S., Australia and Peru.
Newmont gets about 90% of its revenue from gold. It gets the remaining 10% from copper, zinc and other metals. Most of Newmont’s copper comes from its 27.56% stake in the large Batu Hijau mining complex in Indonesia. Combined with financing arrangements the company has with other Batu Hijau shareholders, Newmont’s economic interest in this mine is effectively 44.56%.
The company prefers to sell its gold at the market price instead of through long-term hedging contracts that lock in prices. This policy has helped it take full advantage of rising gold prices: Newmont’s average realized gold price jumped 105.7%, from $594 an ounce in 2006 to $1,222 in 2010.
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Newmont gets about 90% of its revenue from gold. It gets the remaining 10% from copper, zinc and other metals. Most of Newmont’s copper comes from its 27.56% stake in the large Batu Hijau mining complex in Indonesia. Combined with financing arrangements the company has with other Batu Hijau shareholders, Newmont’s economic interest in this mine is effectively 44.56%.
The company prefers to sell its gold at the market price instead of through long-term hedging contracts that lock in prices. This policy has helped it take full advantage of rising gold prices: Newmont’s average realized gold price jumped 105.7%, from $594 an ounce in 2006 to $1,222 in 2010.
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RUSSEL METALS $22.09 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 67.0 million; Market cap: $1.5 billion; Dividend yield: 5.4%) is one of North America’s largest metal distributors. The company serves its roughly 30,000 customers through a network of 50 locations in Canada and 12 in the U.S.
In the three months ended June 30, 2011, Russel’s earnings per share rose sharply, to $0.43 from $0.14 a year earlier. Revenue rose 21.1%, to $705.4 million from $582.5 million.
Revenue rose at all three of Russel’s divisions: The steel distribution division’s revenue rose 19% due to higher sales volumes and steel prices. Metal services revenue rose 24%, also on higher sales volumes and prices. The energy tubular products division, which supplies pipes for oil and gas companies, saw its revenue rise 19% on higher drilling activity.
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In the three months ended June 30, 2011, Russel’s earnings per share rose sharply, to $0.43 from $0.14 a year earlier. Revenue rose 21.1%, to $705.4 million from $582.5 million.
Revenue rose at all three of Russel’s divisions: The steel distribution division’s revenue rose 19% due to higher sales volumes and steel prices. Metal services revenue rose 24%, also on higher sales volumes and prices. The energy tubular products division, which supplies pipes for oil and gas companies, saw its revenue rise 19% on higher drilling activity.
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TOROMONT INDUSTRIES LTD. $20.01 (Toronto symbol TIH; TSINetwork Rating: Extra Risk) (416-667-5511; www.toromont.com; Shares outstanding: 77.2 million; Market cap: $1.5 billion; Dividend yield: 2.2%) 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, Toromont completed the spinoff of Enerflex Ltd.. 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 September 30, 2011, higher equipment sales and rentals pushed up Toromont’s revenue by 9.3%, to $367.3 million from $336.0 million a year earlier. Without one-time items, earnings per share rose 33.3% to $0.40 from $0.30, on the higher revenue and improved profit margins.
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In July 2011, Toromont completed the spinoff of Enerflex Ltd.. 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 September 30, 2011, higher equipment sales and rentals pushed up Toromont’s revenue by 9.3%, to $367.3 million from $336.0 million a year earlier. Without one-time items, earnings per share rose 33.3% to $0.40 from $0.30, on the higher revenue and improved profit margins.
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EUROPEAN GOLDFIELDS $12.16 (Toronto symbol EGU; TSINetwork Rating: Speculative) (44 (20) 7408 9534; www.egoldfields.com; Shares outstanding: 183.8 million; Market cap: $2.2 billion; No dividends paid) is up over 20% since early December. The rise came after the company confirmed that unnamed potential buyers have approached it about a takeover.
Eldorado Gold, symbol ELD on Toronto, and Centerra Gold, symbol CG on Toronto, are rumoured to be interested parties.
We’ve said for some time that European Goldfields could become a takeover target as its new mines move toward production. That’s even more of a possibility now, after its recent financing deal with Qatar Holdings LLC, a division of Qatar’s sovereign wealth fund, to develop its mines in Greece and Romania. These mines should let the company produce around 400,000 ounces of gold a year by 2014.
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Eldorado Gold, symbol ELD on Toronto, and Centerra Gold, symbol CG on Toronto, are rumoured to be interested parties.
We’ve said for some time that European Goldfields could become a takeover target as its new mines move toward production. That’s even more of a possibility now, after its recent financing deal with Qatar Holdings LLC, a division of Qatar’s sovereign wealth fund, to develop its mines in Greece and Romania. These mines should let the company produce around 400,000 ounces of gold a year by 2014.
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SYMANTEC $15.39 (Nasdaq symbol SYMC; TSINetwork Rating: Average) (1-408-517-8000; www.symantec.com; Shares outstanding: 751.0 million; Market cap: $11.6 billion; No dividends paid) has agreed to sell its 49% stake in Huawei Symantec Technologies for $350 million. This joint venture sells computer security and data-storage products to businesses, mainly in China. The buyer is Symantec’s partner, Hong Kong-based Huawei Technologies Co.
The joint venture has lost money since it was formed in 2008, so selling it will make Symantec more profitable.
Symantec is a buy.
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The joint venture has lost money since it was formed in 2008, so selling it will make Symantec more profitable.
Symantec is a buy.
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INTACT FINANCIAL $58.23 (Toronto symbol IFC; TSINetwork Rating: Speculative) (416-341-1464; www.intactfc.com; Shares outstanding: 109.4 million; Market cap: $6.2 billion; Dividend yield: 2.5%) recently completed its purchase of AXA Canada from Paris-based ASX Group for $2.6 billion.
Intact plans to look for more casualty and property insurers to buy in Canada. That includes other subsidiaries of European insurers, many of which are struggling. Intact estimates that as much as 30% of the Canadian market is controlled by foreign insurers.
The company may aim to expand internationally, but it will remain cautious and likely won’t seriously look for opportunities overseas until late next year at the earliest.
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Intact plans to look for more casualty and property insurers to buy in Canada. That includes other subsidiaries of European insurers, many of which are struggling. Intact estimates that as much as 30% of the Canadian market is controlled by foreign insurers.
The company may aim to expand internationally, but it will remain cautious and likely won’t seriously look for opportunities overseas until late next year at the earliest.
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