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.
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VERIGY LTD. $8.84 (Nasdaq symbol VRGY; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 60.0 million; Market cap: $530.4 million; Price-to-sales ratio: 1.1; No dividends paid; TSINetwork Rating: Extra Risk; www.verigy.com) designs and makes test systems that are used in the production of computer chips. The company recently agreed to acquire rival LTXCredence Corp. (Nasdaq symbol LTXC) in an all-stock deal. Verigy shareholders will own 56% of the combined company, which will keep the Verigy name and trading symbol. LTX investors will own the remaining 44%. The merger will let Verigy offer its customers a wider variety of testing systems, and expand its market share. As well, the company feels that combining manufacturing and other operations will save it $25 million a year....
CEDAR FAIR L.P. $15 (New York symbol FUN; Income Portfolio, Consumer sector; Units outstanding: 55.3 million; Market cap: $829.5 million; Price-to-sales ratio: 0.9; Dividend yield: 2.1%; TSINetwork Rating: Average; www.cedarfair.com) owns and operates 11 amusement parks, six outdoor water parks, one indoor water park and five hotels. Cedar Fair recently refinanced some of the loans it used to fund its $1.24-billion purchase of five theme parks in 2006. Its long-term debt of $1.6 billion is still a high 1.9 times its market cap, but the partnership now has up to six years to repay it. Thanks to the new financing, Cedar Fair will pay a $0.25-a-unit special distribution in December 2010. It will also resume regular quarterly payments of $0.08 a unit. The annual rate of $0.32 yields 2.1%....
MTS SYSTEMS CORP. $37 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.3 million; Market cap: $566.1 million; Price-to-sales ratio: 1.6; Dividend yield: 1.6%; TSINetwork Rating: Average; www.mts.com) makes equipment and software that tests materials, machines and structures. This helps manufacturers lower their costs and improve the quality of their products. MTS recently paid $6.3 million, or $0.24 a share, to settle a patent-infringement lawsuit. Even so, the company’s earnings rose 6.8%, to $18.6 million, in the fiscal year ended October 2, 2010. In the prior year, MTS earned $17.4 million. Earnings per share rose 10.7%, to $1.14 from $1.03, on fewer shares outstanding....
The U.S. consumer sector is highly competitive. Independent stores and smaller chains continue to face rising competition from large discount retailers, like Wal-Mart and Costco. As well, retailers are more exposed to swings in the overall economy than companies in some other sectors, such as utilities. However, aggressive investing in consumer stocks also holds the potential for spectacular gains. To cut your risk and earn higher profits when aggressive investing in the junior retail segment, it’s especially important to focus on chains that can adapt quickly and prosper in the fast-changing retail landscape.
New stores push up this aggressive investing stock’s sales and earnings
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A number of wind power stocks have emerged over the past few years as concern over the environment has grown. However, like many other alternative-energy firms, wind power stocks face significant costs and risks. For example, varying wind speeds cause a wind turbine’s electricity output to fluctuate. In many areas, the wind is stronger in the daytime, when demand is lower, and dies down in the evening, when consumers use more appliances. As well, electrical power can’t be stored efficiently, so to make economic sense it must be used when it is produced. As a result, utilities must maintain back-up power capacity that is equal to their reliance on wind power....
A key part of our three-part investment approach is to stick with well-established, dividend-paying companies. (The other two parts are to spread your money out across the five main economic sectors, and downplay stocks in the broker/public-relations limelight.) Most well-established companies have built up strong reputations that can help them overcome the inevitable downturns. Their trusted brands also make it easier for them to launch new products, or expand into new markets.
Wall Street stocks: Heinz’s strong brands give it a solid foundation
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H.J. HEINZ CO. $49 (New York symbol HNZ; Income Portfolio, Consumer sector; Shares outstanding: 318.3 million; Market cap: $15.6 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.7%; WSSF Rating: Above Average) makes a wide variety of processed foods, including condiments, sauces, soups, baked beans, pastas and infant food. Its flagship product, Heinz Ketchup, accounts for about 60% of U.S. ketchup sales. The company continues to expand its main brands, including Ore-Ida (frozen potatoes), Classico (pasta sauces) and Weight Watchers (diet foods). Heinz’s 15 top-selling brands each generate annual sales of over $100 million. Together, they supply 70% of Heinz’s total sales. Heinz’s sales rose 21.4%, from $8.6 billion in 2006 to $10.5 billion in 2010 (fiscal years end April 30)....
THE JONES GROUP INC. $15 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 87.1 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.3%; WSSF Rating: Average) is the new name of Jones Apparel Group. The company designs clothing, accessories and footwear. Jones sells most of its products through department stores. It also sells goods through its own retail stores. However, it plans to close 290 underperforming stores by the end of this year. That will leave it with around 800 outlets. If you exclude store-closure and severance costs, Jones earned $45.1 million in the three months ended September 30, 2010, up 20.3% from $37.5 million a year earlier. Earnings per share rose 17.4%, to $0.54 from $0.46, on more shares outstanding. Sales rose 19.4%, to $1.0 billion from $855.7 million a year earlier....
CAMPBELL SOUP CO. $36 (New York symbol CPB; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 335.7 million; Market cap: $12.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.1%; WSSF Rating: Above Average) is the world’s largest maker of canned soups. It also makes Prego canned pasta and sauces, Pepperidge Farm cookies and V8 vegetable juices. The company gets 30% of its sales from international markets. Its biggest foreign markets are Australia and Europe. Campbell looks overseas for growth...
LIMITED BRANDS INC. $29 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 322.8 million; Market cap: $9.4 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.1%; WSSF Rating: Average) operates two main retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (soaps and bath oils). It also operates the La Senza lingerie chain in Canada and 30 other countries. The company cut its inventories in response to the recession. That let it avoid costly clearance sales, and sell more of its goods at full price. In its fiscal 2011 second quarter, which ended July 31, 2010, Limited earned $120.6 million, up 100.1% from $60.3 million a year earlier. Earnings per share rose 89.5%, to $0.36 from $0.19, on more shares outstanding. The latest figure excludes a gain on the sale of its remaining 25% stake in the Limited clothing-store chain....