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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C.R. BARD INC. $76 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 96.5 million; Market cap: $7.3 billion; Price-to-sales ratio: 2.9; WSSF Rating: Above Average) makes medical devices in four main areas: urology products, such as drainage and incontinence devices (29% of 2008 sales); vascular products, such as stents and catheters (26%); oncology products that detect and treat various types of cancer (26%); and surgical tools (15%). Other medical products supply the remaining 4%. Bard is looking to add to the number of products it offers over the next few years. This should help it hang onto more of its customers, which mainly consist of hospitals and clinics. The company spends 8% of its revenue on research, and is increasing this spending to develop more new products. Bard also plans to buy other medical-device makers. The company’s strong balance sheet will help support both its research and its acquisition efforts. It holds cash of $632.1 million, or $6.55 a share, and its total debt is just $149.8 million. Bard earned $129.5 million in the three months ended September 30, 2009. That’s up 15.2% from $112.4 million a year earlier. Earnings per share climbed 20.2%, to $1.31 from $1.09, on fewer shares outstanding. Sales rose 3.3%, to $637.0 million from $616.8 million. Bard gets 30% of its sales from outside the U.S., so the higher U.S. dollar hurt the value of its overseas sales. If you disregard currency rates, Bard’s sales would have risen by 6%....
BECKMAN COULTER INC. $66 (New York symbol BEC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 68.6 million; Market cap: $4.5 billion; Price-to-sales ratio: 1.6; WSSF Rating: Average) makes lab equipment that doctors and researchers use to detect substances in bodily fluids. Beckman gets 90% of its sales from hospitals and clinics. Research labs account for the remaining 10%. In August 2009, Beckman paid $780 million for the diagnostic-systems business of Olympus Corp. of Japan. This was a big purchase for Beckman, which earned $233.9 million, or $3.63 a share, in 2008. To help pay for this business, the company issued $495 million in new notes and sold $240 million of new common shares. As of June 30, 2009, Beckman’s long-term debt was just $1.3 billion (29% of market cap), so it has plenty of room for further borrowings....
BAXTER INTERNATIONAL INC. $55 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 602.7 million; Market cap: $33.1 billion; Price-to-sales ratio: 2.7; WSSF Rating: Average) makes medical equipment through three main divisions. BioScience (43% of 2008 sales), makes vaccines and drugs; Medical Delivery (37%) makes intravenous equipment and systems; and Renal (19%) makes dialysis equipment. Other products account for the remaining 1% of sales. Baxter spends about 7% of its revenue on research. The resulting new products should help it maintain its leading position in key markets. The company is expanding its drug operations, which generate higher profits than its other products. A good example is Advate, a hemophilia drug that contains no human or animal proteins. This greatly cuts the risk of disease. Since its launch in 2004, Advate has claimed 70% of the U.S. hemophilia-drug market....
GENERAL MILLS INC. $65 (New York symbol GIS; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 326.6 million; Market cap: $21.2 billion; Price-to-sales ratio: 1.5; WSSF Rating: Above Average) is the second-largest cereal maker in the U.S., after Kellogg. Its main brands include Cheerios, Wheaties, Lucky Charms, Total and Chex. The company also makes a wide variety of other foods. These include Yoplait yogurt, Green Giant canned and frozen vegetables, Betty Crocker baking mixes, Pillsbury frozen dough, Progresso canned soups and Haagen-Dazs ice cream. General Mills has three main divisions: The U.S. retail division (68% of sales) sells products to supermarkets and other mass merchandisers. (Wal-Mart accounts for around 20% of the company’s total sales.) The international division (18% of sales) manages General Mills’ overseas operations. The bakeries and food-services division (14%) mainly sells to restaurants, school cafeterias and vending-machine operators....
Investors often comment that we sometimes differ with the mainstream view on which stocks make good investments. That’s especially true with drug stocks. The general view on these stocks seems to be that they are can’t-miss investments 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. As well, some investors feel that these companies stand to benefit from developing treatments for new diseases, such as the H1N1 influenza virus. (Below, we spotlight a stock that’s making a vaccine for H1N1, but faces fewer of the risks of drug companies. Read on for further details.)...
BAFFINLAND IRON MINES $0.66 (Toronto symbol BIM; SI Rating: Start-up) (416-364-8820; www.baffinland.com; Shares outstanding: 255.3 million; Market cap: $168.5 million) continues to add to reserves through exploration at its Mary River iron-ore project on Baffin Island. Baffinland aims to build an open-pit mine at Mary River over a four-year period. It then plans to produce 18 million tonnes of ore a year for over 21 years. The company has signed contracts to sell the ore to steelmaking giants ThyssenKrupp and ArcelorMittal. However, the project’s timing depends on a continued economic rebound and a rise in steel demand. Baffinland holds a high cash balance of $25 million....
CANALASKA URANIUM $0.18 (Toronto symbol CVV; SI Rating: Start-up) (1-800-667-1870; www.canalaska.com; Shares outstanding: 137.8 million; Market cap: $24.8 million) continues to sign joint-venture partnerships to fund exploration drilling on its seventeen 100%-owned uranium properties in Saskatchewan’s Athabasca Basin region. The company’s partners include Japan’s giant Mitsubishi Corp., Chinese mining firm East Resources Inc. and a consortium of Korean companies that consists of Hanwha Corporation, Korea Electric Power, Korea Resources and SK Energy. CanAlaska holds cash of $8.6 million. CanAlaska owns a large amount of land that contains lots of drilling prospects. Moreover, it has personnel with expertise in exploration and mine building, specifically in the Athabasca Basin region. The company is budgeting for an extensive fall-winter exploration program, which will be partly financed by its joint venture partnerships....
MIRANDA GOLD $0.44 (Toronto symbol MAD; SI Rating: Start-up) (604-689-1659; www.mirandagold.com; Shares outstanding: 44.9 million; Market cap: $19.5 million) explores for gold, mainly in the Cortez Trend and Battle Mountain-Eureka regions of Nevada. Miranda has 13 properties in various stages of production in these areas, which are two of the world’s most productive gold belts. The company takes part in a number of joint ventures. These are crucial for junior-exploration firms, as they give them a way to fund further exploration on properties where they have already discovered minerals. The agreements also let juniors retain an interest in the properties without taking on debt or resorting to dilutive share issues. Miranda has joint ventures with Montezuma Mines, NuLegacy Gold, Newcrest Resources, Piedmont Mining, White Bear Resources and Queensgate Resources. The company holds $10.5 million in cash, which is enough for over five years of exploration....
COMPTON PETROLEUM $1.24 (Toronto symbol CMT; SI Rating: Speculative) (403-237-9400; www.comptonpetroleum.com; Shares outstanding: 263.6 million; Market cap: $326.8 million) explores for oil and natural gas in western Canada. About 83% of its production is natural gas. In the three months ended June 30, 2009, Compton’s cash flow per share fell sharply, to $0.08 from $0.59 a year earlier. Revenue fell 71.0%, to $54.1 million from $186.8 million. Lower oil and gas prices contributed to the declines. As well, the company saw a 29.8% drop in production because it sold land to pay down debt. Compton’s debt of $853.9 million is a high 2.6 times its $326.8-million market cap. The company is further lowering its debt by selling overriding royalties on its production. Overriding royalties give the buyer ownership of a percentage of production revenue, before any costs....
DELPHI ENERGY $1.68 (Toronto symbol DEE; SI Rating: Speculative) (403-265-6171; www.delphienergy.ca; Shares outstanding: 92.3 million; Market cap: $155.1 million) explores for oil and gas in Alberta and B.C. Natural gas makes up 87% of its overall daily output. In the three months ended June 30, 2009, Delphi’s average daily output rose 9.8%, to 6,809 barrels of oil equivalent (this measurement includes natural gas) from 6,202 barrels. Despite the higher production, Delphi’s cash flow per share fell 44.8%, to $0.16 from $0.29 a year earlier. That’s because of lower oil and gas prices....