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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Giant computer maker Dell Inc. recently caught the attention of a number of tech stock investors when it bought Perot Systems, a computer outsourcing firm. But it wasn’t the takeover itself that was surprising; it was the tech stock’s $3.9 billion offer for Perot that caused eyeballs to pop. That’s a 60% premium over Perot’s share price at the time of the takeover.
Dell’s offer throws the spotlight on tech stocks that provide consulting services
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During the 1990s, many investors held to a fixed idea that global stock market equities would be more profitable than North American stocks. This was especially true, so they claimed, of companies based in China, India and other emerging markets. We advised our readers to resist investing heavily in emerging markets during those years. Instead, we recommended that investors look to their U.S. holdings, and the buys we recommended in Wall Street Stock Forecaster, for overseas exposure. U.S. blue-chip stocks operate in many countries. And we felt that the domestic U.S. market offered opportunities that simply weren’t available in Canada. In the end, this advice paid off handsomely for our readers....
We’ve had a lot of success over the years with the aggressive investing stock picks we recommend in our Stock Pickers Digest newsletter. Aggressive picks have the potential to give you bigger gains than your conservative selections. Even so, aggressive stocks are best suited to investors who can accept substantial risk in the portion of their portfolios that they devote to these types of investments. You can be wrong on any of your stock picks, of course. But when you’re wrong on a speculative stock, your losses are likely to be larger than they would be with a well-established company....
On October 22, Microsoft will launch its new Windows 7 operating system. If the release goes smoothly, Microsoft stands to gain from sales of the new software. That’s because many computer users put off upgrading from earlier versions because of complaints about its previous Windows release, Vista. The company has also timed the launch of Windows 7 to coincide with the beginning of the Christmas shopping season.
Other technology stocks stand to gain from Windows 7
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NVIDIA CORP. $15 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 547.8 million; Market cap: $8.2 billion; Price-to-sales ratio: 3.0; WSSF Rating: Average) designs video chips that make computer games run more smoothly and appear more lifelike. It outsources most of its production to chipmakers in Asia. Nvidia earned $37.7 million in its second quarter, which ended July 26, 2009. That’s down 49.4% from $74.5 million a year earlier. Earnings per share fell 46.2%, to $0.07 from $0.13. These figures exclude charges in both quarters for extra warranty payments related to defective chips. Sales fell 13.0%, to $776.5 million from $892.7 million. The company continues to spend around 25% of its revenue on research. It’s devoting most of this to new graphic chips for mobile devices. These should cut its reliance on computer sales. Nvidia holds cash of $1.5 billion, or $2.68 a share, and has little debt....
INTEL CORP. $20 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.6 billion; Market cap: $112 billion; Price-to-sales ratio: 3.3; WSSF Rating: Above Average) is the world’s leading computer-chip maker, with 80% of the market. The company is combining its operations into two main divisions. These will be organized by function instead of by product. The first, the Intel Architecture Group, will design chips for computers, cellphones and similar devices. The second, called the Technology and Manufacturing Group, will manage Intel’s manufacturing plants. Most chipmakers focus on either design or manufacturing, but not both. The reorganization would make it easier for Intel to split itself into two companies. However, any potential breakup is probably years away....
PETSMART INC. $22 (Nasdaq symbol PETM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 125 million; Market cap: $2.8 billion; Price-to-sales ratio: 0.5; WSSF Rating: Above Average) sells pet food and supplies through 1,145 stores in the U.S. and Canada. It also provides veterinary and grooming services, and boards pets at its 156 PetHotels. In PetSmart’s second quarter, which ended August 2, 2009, its earnings rose 4.6%, to $39 million from $37.2 million a year earlier. Earnings per share gained 3.3%, to $0.31 from $0.30. Revenue rose 5.4%, to $1.3 billion from $1.2 billion. About 85% of the revenue gain came from the 70 stores and 35 PetHotels that PetSmart opened over the past year. Same-store sales rose 0.8%. Pet-service revenue, which accounts for 12% of the company’s overall sales, rose 10.2%. Because of the slow economy, PetSmart plans to open just seven to nine new stores in the second half of fiscal 2010. This will let the company focus on improving the profitability of its existing stores....
IDEXX LABORATORIES INC. $52 (Nasdaq symbol IDXX; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.6 million; Market cap: $3 billion; Price-to-sales ratio: 3.1; WSSF Rating: Average) makes equipment that veterinarians uses to detect diseases in animals. Idexx also makes systems that detect contaminants in water and milk. Because of the weak economy, fewer pet owners are taking their animals to veterinarians for routine screenings. This has hurt sales of Idexx’s systems and supplies. As well, Idexx gets 40% of its sales from outside the U.S. This leaves it vulnerable to a high U.S. dollar. These factors drove down Idexx’s earnings by 14.5% in the three months ended June 30, 2009, to $33.7 million from $39.4 million a year earlier. Earnings per share fell 12.7%, to $0.55 from $0.63, on fewer outstanding shares. Revenue was down 5.3%, to $265.7 million from $280.6 million. Idexx spends about 5% of its revenue on research....
TUPPERWARE BRANDS CORP. $40 (New York symbol TUP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 63 million; Market cap: $2.5 billion; Price-to-sales ratio: 1.3; WSSF Rating: Above Average) makes plastic food and beverage containers. It also makes beauty products. The company sells its products through a network of independent dealers instead of traditional retail stores. This keeps its distribution costs low. Tupperware gets over 80% of its sales from outside of the U.S., so it’s particularly vulnerable to a rising U.S. dollar. In the three months ended June 27, 2009, sales fell 10.1%, to $524.7 million from $583.6 million a year earlier. But if you disregard foreign-exchange rates, its sales would have risen 4%. Earnings fell 7.1%, to $0.52 a share (or a total of $33.1 million) from $0.56 a share (or $36.0 million). However, earnings rose 42% on a constant-currency basis. The company is selling more high-margin products; this was the main reason behind the earnings gain. Tupperware also benefited from lower resin and freight costs....
NEWELL RUBBERMAID INC. $16 (New York symbol NWL; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 277.7 million; Market cap: $4.4 billion; Price-to-sales ratio: 0.7; WSSF Rating: Average) makes plastic storage bins, tools, window blinds, pens and a number of other household items. Its top brands include Rubbermaid, Sharpie, Paper Mate, Waterman and Levolor. In response to falling sales, Newell is closing plants and streamlining its distribution operations. It’s also selling low-margin businesses, particularly those that use large amounts of plastic resins. These are made from oil, so these moves will cut Newell’s exposure to volatile oil prices. In all, the company will pay $475 million to $500 million in severance and other costs. However, the plan should lower Newell’s costs by $175 million to $200 million a year by the end of 2010. So far, the company has realized $100 million of these savings....