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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ABB LTD. ADRs, New York symbol ABB, manufactures transformers, transmission switches and other equipment for distributing electricity. It also makes automation systems and robotics that increase the productivity of manufacturing plants. Switzerland-based ABB has clients in a variety of industries. The company is one of the world stock market investments we analyze in our Wall Street Stock Forecaster newsletter The company earned $655 million in the three months ended March 31, 2011, up 41.2% from $464 million a year earlier. Earnings per ADR gained 45.0%, to $0.29 from $0.20, on fewer ADRs outstanding. (Each American Depositary Receipt represents one ABB common share.) Revenue rose 21.2% to $8.4 billion from $6.9 billion. Rising industrial development and higher commodity prices are prompting the company’s clients to increase their capacity and make their plants more efficient. These factors are pushing up demand for ABB’s products. Orders for new equipment rose 25% during the quarter. The company’s order backlog is now a record $29.3 billion....
H&R BLOCK INC. $16 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 305.3 million; Market cap: $4.9 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.hrblock.com) is the world’s largest provider of income-tax-preparation services. H&R Block’s U.S. offices prepared 20.8 million tax returns between November 1, 2010 and April 18, 2011. That’s up 6.1% from 19.6 million for the same period a year earlier. Most of this growth came from a 26.8% jump in returns processed over the Internet. However, the average fee per return fell 3.3%. The stock has gained over 40% since the start of 2011, but it has fallen lately due to H&R Block’s involvement with subprime mortgages. Even though it shut down its Option One mortgage business in December 2007, holders of bonds backed by Option One’s mortgages now aim to force H&R Block to buy back these securities. The cost would likely be much higher than the company’s $4.9-billion market cap. Still, it will likely take years to settle these claims....
WESTERN UNION CO. $21 (New York symbol WU; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 632.3 million; Market cap: $13.3 billion; Price-to-sales ratio: 2.5; Dividend yield: 1.5%; TSINetwork Rating: Above Average; www.westernunion.com) provides money-transfer and foreign-exchange services in over 200 countries. The company earned $210.2 million in the three months ended March 31, 2011, up 1.1% from $207.9 million a year earlier. Western Union spent $525.2 million on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose 6.7%, to $0.32 from $0.30. Excluding costs related to the company’s restructuring, which mainly consisted of layoffs, it earned $0.35 in the latest quarter. Revenue rose 4.1%, to $1.3 billion from $1.2 billion. Growth was strong in the Asia Pacific region, the Americas and much of Europe....
T. ROWE PRICE GROUP INC. $62 (Nasdaq symbol TROW; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 259.8 million; Market cap: $16.1 billion; Price-to-sales ratio: 6.5; Dividend yield: 2.0%; TSINetwork Rating: Average; www.troweprice.com) sells mutual funds and wealth-management services. Rising stock markets have lifted the value of the assets that T. Rowe Price manages. On March 31, 2011, these assets were worth a record $509.9 billion, up from $482.0 billion at the end of 2010. The company’s fees vary with the value of these assets. That’s why its revenue rose 22.7% in the first three months of 2011, to $682.4 million from $556.2 million a year earlier. Earnings rose 27.2%, to $194.6 million, or $0.72 a share, from $153.0 million, or $0.57 a share....
PetSmart Inc., Nasdaq symbol PETM, operates 1,192 pet stores in the U.S. and Canada. It also has 184 in-store PetsHotel dog and cat boarding facilities. PetSmart is one of the stocks we analyze in Wall Street Stock Forecaster, our newsletter for U.S.A. stock market investing. In its 2012 first quarter, which ended May 1, 2011, PetSmart’s earnings rose 27.5%, to $70.9 million from $55.6 million a year earlier. The company spent $102 million on share buybacks in the quarter. Due to fewer shares outstanding, earnings per share rose 32.6%, to $0.61 from $0.46. That easily beat the consensus earnings forecast of $0.49 a share....
STATE STREET CORP. $45 (New York symbol STT; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 504.0 million; Market cap: $22.7 billion; Price-to-sales ratio: 2.5; Dividend yield: 1.6%; TSINetwork Rating: Extra Risk; www.statestreet.com) sells accounting and administrative services to large institutional investors, such as mutual funds and pension plans. State Street continues to benefit from rising stock markets. Its fee income rises and falls with the value of the mutual funds and other securities it manages, so the company’s revenue and earnings benefit when the value of these assets rises. The company is also cutting its long-term costs with a new restructuring plan, which mainly involves cutting 1,400 jobs (or 5% of its workforce) and selling surplus real estate. The plan will cost State Street $400 million to $450 million over the next four years. However, it should lower its annual expenses by $575 million to $625 million by the end of 2014....
AMERICAN EXPRESS CO. $50 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $60.0 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.4%; TSINetwork Rating: Average; www.americanexpress.com) gets most of its revenue from the fees it charges merchants when consumers use its credit and charge cards. It also provides travel-agency services. The company’s cardholders have above-average credit scores and income. As a result, most of them pay their bills on time. The improving economy is also pushing up its travel-related fees. In the three months ended March 31, 2011, American Express earned $1.2 billion, or $0.97 a share. That’s up 33.0% from $885 million, or $0.73 a share, a year earlier. The company continues to set aside less money to cover bad loans: its loan-loss provisions fell 89.7%, to $97 million from $943 million....
VISA INC. $78 (New York symbol V; Conservative Growth Portfolio, Finance sector; Shares outstanding: 830.1 million; Market cap: $64.7 billion; Price-to-sales ratio: 7.5; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.visa.com) operates the world’s largest retail electronic-payments network. The company processes credit, debit, prepaid and commercial payments under the Visa, Visa Electron, Interlink and PLUS brands. The stock fell to $67 in December 2010 after the U.S. Federal Reserve proposed new limits on fees banks can charge for debit-card transactions. Visa gets about 20% of its revenue from debit-card transactions in the U.S. Regulators now aim to make a final ruling on these fees by July 21, 2011. However, a new bill in the U.S. Senate would delay any changes to the current system for two years....
CHEVRON CORP. $103 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $206.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.chevron.com) is the second-largest integrated oil company in the U.S., after ExxonMobil Corp....
Russel Metals, symbol RUS on Toronto, is one of North America’s largest metal distribution companies. Russel has three divisions: metals service centres (55% of sales) sells carbon steel and non-ferrous metals; energy tubular products (34%) sells tubular products to the energy industry in Western Canada and the U.S.; and steel distributors (11%) sells steel in large volumes, mainly to other metals distributors and original equipment manufacturers in Canada and the U.S. The Canadian dividend stock’s quarterly payout is $0.274 a share. That gives the shares a 4.5% yield on an annualized basis. In the three months ended March 31, 2011, Russel earned $33 million, or $0.55 a share. That’s up sharply from $9.1 million, or $0.15 a share, a year earlier....