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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LIZ CLAIBORNE INC. $6.38 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 94.5 million; Market cap: $602.9 million; Price-to-sales ratio: 0.2; No dividends paid since December 2008; WSSF Rating: Extra Risk) designs and sells clothing and accessories for men and women. Its top brands include Liz Claiborne, Juicy Couture and Kate Spade. Liz Claiborne continues to cut costs in response to falling sales: Liz Claiborne has closed 10 distribution centres since 2007. It has also sold less-profitable brands and closed stores. As well, the company hopes to spur growth with new licensing deals with J.C. Penney (see page 104) and the QVC TV shopping channel. The transition of the Liz Claiborne brands to J.C. Penney and QVC caused sales in the three months ended July 3, 2010 to fall 15.5%, to $569.8 million from $674.6 million a year earlier. The company lost $0.19 a share in the quarter, a 61.2% improvement over its year-earlier loss of $0.49 a share....
NORDSTROM INC. $38 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 219.2 million; Market cap: $8.3 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.1%; WSSF Rating: Average) mainly sells upscale clothing, accessories and footwear. The company owns and operates 200 outlets, including 115 department stores, in 28 U.S. states. In its fiscal 2011 second quarter, which ended July 31, 2010, Nordstrom’s revenue rose 12.7%, to $2.5 billion from $2.2 billion a year earlier. Same-store sales rose 8.4%, mainly due to strong demand for women’s clothing, shoes and jewellery. Nordstrom is also benefiting from recent investments in its web site: online sales rose 34.1%. Earnings per share rose 37.5%, to $0.66 from $0.48. Nordstrom benefits from its focus on upscale shoppers. That’s because these consumers are less affected by economic downturns. However, the company aims to attract more cost-conscious customers by opening between 30 and 45 of its Nordstrom Rack clearance stores over the next three years. It now has 82 of these stores....
MACY’S INC. $23 (New York symbol M, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 422.7 million; Market cap: $9.7 billion; Price-to-sales ratio: 0.4; Dividend yield: 0.9%; WSSF Rating: Average) operates 850 department stores under the Macy’s and Bloomingdale’s banners. It also sells goods over the Internet. The company recently let its store managers tailor more of their stores’ goods to local tastes. As well, Macy’s is selling more products promoted by celebrities, such as Martha Stewart. Both of these moves have helped attract more customers. In its fiscal 2011 second quarter, which ended July 31, 2010, Macy’s earned $0.35 a share. That’s up 75.0% from the $0.20 a share, excluding restructuring charges, that the company earned a year earlier. Sales rose 7.2% in the latest quarter, to $5.5 billion from $5.2 billion. Same-store sales rose 4.9%. Online sales jumped 28.1%....
J.C. PENNEY CO. INC. $32 (New York symbol JCP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 236.4 million; Market cap: $7.6 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.5%; WSSF Rating: Average) operates 1,100 department stores in the U.S. and Puerto Rico. It also sells goods over the Internet. In its second quarter, which ended July 31, 2010, J.C. Penney reported sales of $3.9 billion, unchanged from a year earlier. Higher clothing sales offset the lost revenue from the shutdown of J.C. Penney’s catalogue business. On a same-store basis, sales rose 0.9%. Online sales rose 4.0%. The company earned $14 million, or $0.06 a share, in the latest quarter. That’s much better than the $1 million, or nil per share, it lost a year earlier. J.C. Penney is doing a good job of managing its inventories. That cuts the need for costly clearance sales....
Growth stocks are companies whose earnings growth has been above the market average, and is likely to remain above average. These firms often pay little or no dividends. Instead, they invest their free cash flow in furthering their growth.
These stocks can be highly volatile, but they often make good long-term investments....
These stocks can be highly volatile, but they often make good long-term investments....
High-quality foreign stocks are a great way to diversify your portfolio. Moreover, many fast-growing markets, like China and India, have positive outlooks. That’s because their people are generally younger than North Americans, and rising incomes are helping more of them advance into the middle class. Even so, world stock market investing remains riskier than investing in North America. That’s because many emerging countries have language barriers, weak investor-protection laws, less commitment to openness, fairness and so on. Here are 3 simple ways to tap into world stock market profits at lower risk:...
We continue to recommend a number of companies that are now involved in, or are planning to expand into, green technology and green power production. However, while green stocks appeal to a lot of investors on an emotional and conceptual level, many offer only limited investment potential. That’s because green stocks may need a long time to move from the research or concept stage to profitability. The weak economy has also cast doubt on the future of government subsidies for green stocks. To cut your risk in green stocks, we recommend focusing on established firms that have a sound base of other operations, or whose products have a number of different uses....
Aggressive investors need to be more skeptical and discriminating than conservative investors, because they take on greater risk. Conservative investors mainly buy well-established companies with a history of earnings and possibly dividends, and a secure hold on a growing, or at least stable, clientele. (In the latest issue of Stock Pickers Digest, our newsletter for aggressive investing, we’ve updated our buy/sell/hold advice on a home-security firm that has risen more than 30% for us in the past year. And its U.S. expansion could help push it even higher. Read on for further details.)
Cut risk by keeping aggressive investing picks to a reasonable portion of your overall portfolio
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LINAMAR CORP. $20 (Toronto symbol LNR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.7 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.6%; SI Rating: Extra Risk) gets about 90% of its revenue by selling transmissions and other parts to several carmakers. The company also makes self-propelled, scissor-type elevating work platforms under the Skyjack name, plus consumer products, such as lawn mowers and cargo trailers. Linamar continues to benefit from rising car sales in the wake of the recession. It cut 40% of its workforce during the downturn, but has rehired many workers as car sales recovered. Still, the company expects its cost-cutting plan to lower its annual expenses by $60 million, starting this year. In the three months ended June 30, 2010, Linamar earned $26.6 million, or $0.41 a share. That’s a big improvement over its year-earlier loss of $10.1 million, or $0.16 a share. The year-earlier results excluded severance payments and write-downs of plants and equipment....
A number of our Inner Circle members have asked our opinion on global stock market investing in recent months, particularly companies that operate in fast-growing emerging markets. Some of these companies may not be well-known to North American investors. However, if it’s possible to invest in these stocks through North American markets, our team of independent investment experts is happy to look into them. We then share our research with all of our Inner Circle members, along with the original member’s question (of course, we eliminate any personal information). We reserve our specific buy/sell/hold advice for Inner Circle members, of course. But to give you an idea of the depth of our research, here are two recent examples of member questions about global stock market investing. One is about a Spanish telecommunications company that’s part of a joint venture to expand China’s wireless networks. The other is about a growing Philippine fast-food chain....