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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AT&T INC. $27 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 5.9 billion; Market cap: $159.3 billion; Price-to-sales ratio: 1.3; WSSF Rating: Average) sells traditional telephone services to 45.7 million consumer and business customers in 13 states. Its wireless division has 81.6 million customers nationwide. Since 2007, AT&T has been the exclusive U.S. carrier of the hugely popular Apple iPhone. The company attracted a record 3.2 million new iPhone users in the three months ended September 30, 2009. About 40% of these customers were new to AT&T. Despite these new clients, AT&T’s third-quarter revenue fell 1.6%, to $30.9 billion from $31.3 billion a year earlier. Earnings fell 1.2%, to $3.19 billion from $3.23 billion. Earnings per share fell 1.8%, to $0.54 from $0.55, on more shares outstanding....
VERIZON COMMUNICATIONS INC. $32 (New York symbol VZ; Income Portfolio, Utilities sector; Shares outstanding: 2.8 billion; Market cap: $89.6 billion; Price-to-sales ratio: 0.9; WSSF Rating: Average) has 33.4 million phone customers in 28 states. It also has 89 million wireless users. The company is the exclusive carrier of Motorola’s new Droid smartphone, which uses the Android operating system developed by Internet search provider Google. This new phone should help Verizon compete with the iPhone. Meanwhile, Verizon earned $0.60 a share (or a total of $1.7 billion) in the third quarter of 2009. That’s down 9.1% from $0.66 a share (or $1.9 billion) a year earlier. These figures exclude integration and other costs related to Verizon’s January 2009 purchase of rural wireless carrier Alltel Corp. Revenue rose 10.2%, to $27.3 billion from $24.8 billion, mainly because of Alltel....
The U.S. dollar is down 22% against the Canadian dollar so far this year. Many investors fear it will keep falling. If you knew the U.S. dollar would keep falling, the best strategy would be to sell all of your U.S. stocks and buy them back when the dollar stabilizes. However, you don’t know where the U.S./Canada exchange rate is going next — you never do.
Wall Street stocks give you opportunities that just aren’t available in Canada
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Recently, President Barack Obama visited a Florida solar-power plant operated by FPL Group (symbol FPL on New York), one of the green stocks we cover in our Wall Street Stock Forecaster newsletter. The president was there to announce a $200 million U.S. grant to FPL that will help with the green stock’s installation of “smart meters.” Customers can use these meters to cut their power use and save on their electricity bills. The grant is part of the government’s continuing investment in strengthening and upgrading the country’s power grid. FPL is in a good position to scoop up even more green-power subsidies over the next few years. See below for more on this company’s leading-edge operations....
Technology stocks have always been a more speculative segment of the stock market. But you can turn the odds in your favour by investing in those that have hidden assets, or assets that other investors overlook. Hidden assets are items that don’t show up on a company’s balance sheet, but can offer dramatic rewards for investors who are able to spot them.
This technology stock’s research spending is a key hidden asset
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Warren Buffett’s Berkshire Hathaway Inc. recently announced that it will buy the 77% of U.S.-based railway Burlington Northern Santa Fe Corp. that it doesn’t already own. The company will pay $44 billion U.S. to complete the takeover. Burlington Northern owns one of the largest railroad networks in the U.S., with about 51,500 kilometres of track.
Berkshire’s not one of our favourite growth stock picks, but we agree with Buffett on railways
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ISHARES DIVIDEND INDEX FUND $17.74 (Toronto symbol XDV; buy or sell through a broker) holds the 30 highest-yielding Canadian stocks based on dividend growth, yield and average payout ratio. The weight of any one stock is limited to 10% of assets. The fund’s MER is 0.50%. iShares Dividend Index Fund has a yield of 4.0%. Top holdings are National Bank, 8.9%; Bank of Montreal, 8.0%; CIBC, 7.2%; TD Bank, 6.3%; IGM Financial, 5.0%; Bank of Nova Scotia, 5.0%; Royal Bank, 4.9%; Manitoba Telecom, 4.6%; TMX Group, 3.6%; Sun Life, 3.2%; Power Financial, 3.2%; Telus, 3.1%; and Russel Metals, 2.8%. iShares Dividend Index Fund is a buy.
ARKANSAS BEST CORP. $26 (Nasdaq symbol ABFS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 25.0 million; Market cap: $650.0 million; Price-to-sales ratio: 0.5; WSSF Rating: Average) specializes in “less-than-truckload” shipping. This involves loading freight from a number of customers onto a single truck. Arkansas Best carries a range of goods, including food, textiles, clothing and furniture. The company operates in the U.S., Canada and Mexico. In the three months ended September 30, 2009, Arkansas Best’s total tonnage hauled fell 10.1% from a year earlier. However, it rose 5.8% from the previous quarter. As well, weak demand is forcing the company to lower its prices to stay competitive. As a result, Arkansas Best’s revenue fell 19.5% in the most recent quarter, to $399.0 million from $495.8 million a year earlier. The company lost $0.23 a share, compared to earnings of $0.60....
FEDEX CORP. $74 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 312.5 million; Market cap: $23.1 billion; Price-to-sales ratio: 0.7; WSSF Rating: Average) delivers packages and documents in the U.S. and over 220 other countries. FedEx earned $0.58 a share in its first quarter, which ended August 31, 2009. That’s down 52.8% from $1.23 a year earlier. Revenue fell 19.7%, to $8 billion from $10 billion. Like most shipping companies, FedEx added a surcharge to its fees when fuel costs were rising. But now that oil prices have fallen to around $77 a barrel from last year’s peak of $148, FedEx is getting less revenue from these surcharges. Despite the drop in fuel-surcharge revenue, lower fuel costs should help FedEx increase its profits as an economic recovery pushes up shipping volumes. As well, European-based courier DHL Express exited the U.S. domestic delivery market last year due to growing losses. This gives FedEx an opportunity to expand its market share....
INVACARE CORP. $23 (New York symbol IVC; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 32.1 million; Market cap: $738.3 million; Price-to-sales ratio: 0.4; WSSF Rating: Average) makes wheelchairs, motorized scooters and other mobility and home-care products. Invacare spends much less on research than Baxter, Bard and Beckman— typically less than 2% of its revenue. That’s because it mainly focuses on improving its current products, rather than developing new ones. Simplifying its products, along with shifting production to low-cost countries, has also lowered the company’s operating costs. In the three months ended September 30, 2009, earnings before restructuring costs rose 23.8%, to $0.52 a share from $0.42 a year earlier. Sales fell 6.0%, to $434.0 million from $461.8 million. If you exclude an acquisition and currency-exchange rates, sales would have fallen by 2.2%....