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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ALCOA INC. $14 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.0 billion; Market cap: $14.0 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.9%; TSINetwork Rating: Average; www.alcoa.com) is one of the world’s largest aluminum producers. Its customers are mainly in the aerospace, automotive and construction industries. The company produced 12.0% more raw alumina ore in its latest quarter than a year ago. That helped offset a 5% drop in selling prices. That’s why Alcoa’s revenue rose 14.6% in the three months ended September 30, 2010, to $5.3 billion from $4.6 billion a year earlier. The higher revenue helped spur a 31.5% jump in Alcoa’s earnings, to $96 million from $73 million. Earnings per share rose 28.6%, to $0.09 from $0.07, on more shares outstanding. These figures exclude several unusual items, including repair costs after a flood damaged the company’s smelter in Spain....
NEWMONT MINING CORP. $61 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 493.1 million; Market cap: $30.1 billion; Price-to-sales ratio: 3.2; Dividend yield: 1.0%; TSINetwork Rating: Average; www.newmont.com) is one of the world’s largest gold-mining companies. Newmont has major mines in the U.S., Australia and Peru. Gold accounts for about 85% of Newmont’s revenue. The remaining 15% comes from copper, zinc and other metals. Most of Newmont’s copper comes from its 35.4% stake in the large Batu Hijau mining complex in Indonesia. Gold has jumped 35%, from $1,062 an ounce in February 2010 to a new all-time high of $1,433 in December 2010. Newmont 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....
BHP BILLITON LTD. ADRs $89 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $249.2 billion; Price-to-sales ratio: 4.7; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bhpbilliton.com) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. Regulators in Australia and Canada have recently forced the company to cancel two big deals. In October 2010, BHP called off its plan to merge its iron-ore operations in Australia with those of Rio Tinto Ltd. (New York symbol RIO)....
BROADRIDGE FINANCIAL SOLUTIONS INC. $22 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 125.0 million; Market cap: $2.8 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.7%; TSINetwork Rating: Average; www.broadridge.com) provides communication, processing and other services to the investment industry. These services help its customers cut costs and focus on their core businesses. Broadridge’s clients include 250 banks, 500 mutual-fund families and over 5,000 publicly traded companies. The company gets roughly 75% of its revenue from its Investor Communication Solutions division, which distributes proxy materials, including ballots, to investors in stocks and mutual funds. It then counts the votes. Broadridge’s ProxyEdge software helps centralize and simplify shareholder voting, particularly if a meeting involves multiple ballots. Broadridge mails and processes two-thirds of all proxy votes in the U.S....
Many investors think drug stocks are can’t-miss investments. That’s because the baby boomers are reaching an age when they will need drugs for a number of medical conditions, and are willing to pay for them. We agree that the aging of the boomers will create drug demand. But there are several drawbacks to drug stocks that you should keep in mind if you are thinking of investing in them. Here are three major hurdles most drug stocks face:
- High research costs: Drug firms need to spend heavily to create new drugs. Even then, they only get to profit for a limited time before patents run out and generic products appear. Then too, their research spending may lead to dead ends, rather than new drugs that fill a need.
- Regulatory risk: Drug stocks whose success depends on drugs that are currently in clinical trials expose you to huge risk. Not only are the chances of success in trials remote, the U.S. Food and Drug Administration (FDA) has become more cautious in approving new drugs following Merck’s 2004 voluntary withdrawal of heart drug Vioxx due to side effects; the FDA approved Vioxx in 1999. This heightened FDA caution adds further risk to new drug investments.
TERADATA CORP. $41 (New York symbol TDC; Aggressive Growth Portfolio, Manufacturing & Industry sector: Shares outstanding: 167.5 million; Market cap: $6.9 billion; Price-to-sales ratio: 3.7; No dividends paid; TSINetwork Rating: Average; www.teradata.com) makes computers and software that capture and store large amounts of a business’s data. Teradata then analyzes this information and identifies buying habits and trends. Teradata is taking advantage of the weak economy to hire new salespeople. That’s helping it enter new markets and offer more technology and services to its existing clients. These efforts should add $70 million to Teradata’s 2010 sales. As well, it continues to spend around 7% of its revenue on research. Resulting new products should also fuel its growth. In the three months ended September 30, 2010, earnings rose 19.0%, to $75 million from $63 million a year earlier. Earnings per share rose 22.2%, to $0.44 from $0.36, on fewer shares outstanding. Sales rose 15.1%, to $489 million from $425 million. The company has no debt, and holds cash of $741 million, or $4.42 a share....
HARTE-HANKS INC. $12 (New York symbol HHS; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 63.6 million; Market cap: $763.2 million; Price-to-sales ratio: 0.9; Dividend yield: 2.5%; TSINetwork Rating: Average; www.harte-hanks.com) gets two-thirds of its revenue by selling direct-mail and other marketing services to a wide variety of clients. The remaining third comes from publishing free, advertising-supported newspapers in Florida and California. In August 2010, the company paid $12.9 million for Information Arts (UK) Ltd., which provides data warehousing services to businesses in Europe. Right now, Harte-Hanks gets 90% of its sales from North America, so expanding overseas lowers its risk. In the three months ended September 30, 2010, revenue rose 3.5%, to $216.7 million from $209.3 million a year earlier. That’s mainly because Harte-Hanks won a large contract. However, the extra costs related to this job, as well as adding Information Arts’ employees, caused earnings to fall 1.7%, to $13.8 million from $14.1 million. Earnings per share were unchanged at $0.22....
AGILENT TECHNOLOGIES INC. $36 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 346.0 million; Market cap: $12.5 billion; Price-to-sales ratio: 2.3; No dividends paid; TSINetwork Rating: Average; www.agilent.com) makes testing systems that help improve electronic products, such as cellphones and networking equipment. In May 2010, Agilent bought Varian Inc. for $1.5 billion. Varian makes a wide range of medical and drug-testing equipment, such as mass spectrometers that detect and measure substances in blood and other samples. Medical-equipment demand is less cyclical than testing products, so this move cuts Agilent’s risk. Thanks to Varian, Agilent earned $706 million, or $2.00 a share, in the year ended October 31, 2010. That’s up 152.1% from $280 million, or $0.80 a share, in fiscal 2009. These figures exclude costs to integrate the new operations. Revenue rose 21.5%, to $5.4 billion from $4.5 billion. The company spends around 11% of its revenue on research....
BUCKEYE PARTNERS L.P. $67 (New York symbol BPL; Income Portfolio, Utilities sector; Units outstanding: 51.6 million; Market cap: $3.5 billion; Price-to-sales ratio: 1.3; Dividend yield: 5.8%; TSINetwork Rating: Average; www.buckeye.com) operates over 8,700 kilometres of pipelines in the northeastern and midwestern U.S. These lines pump gasoline, jet fuel and other petroleum products. Buckeye also owns oil and natural-gas storage terminals and other related businesses. In the three months ended September 30, 2010, Buckeye earned $0.93 a unit, up 4.5% from $0.89 a year earlier. Revenue rose 73.5%, to $734.9 million from $423.4 million. The partnership is transporting more fuel due to the improving economy. As well, Buckeye’s fee income varies with fuel prices, and oil prices, in particular, have risen sharply. Buckeye recently agreed to buy an oil-products storage terminal in Puerto Rico from Royal Dutch Shell plc, for an undisclosed price. This is Buckeye’s first expansion into the Caribbean region. However, the partnership has signed long-term deals to store Shell’s fuel at the Puerto Rican terminal. That cuts the risk of this investment....
We hardly ever recommend buying new issues when they are first sold to the public, and often stay away from them for months, if not years, afterward. That’s because new issues often come to market when it’s a good time for the company and/or its insiders to sell, but that’s not necessarily a good time for you to buy. Spinoffs are in many ways the opposite of new issues. Companies often do spinoffs when they feel it isn’t a good time to sell. Instead, they choose to hand out shares of the new firm to their shareholders. That often results in buying opportunities. (In a just-published issue of Wall Street Stock Forecaster, our newsletter for investing in the U.S. markets, we update our buy/sell/hold advice on a spinoff whose shares have risen over 21% since September. See below for further details on this tech stock’s outlook.)...