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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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....
SHERWIN-WILLIAMS CO. $61 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 116.3 million; Market cap: $7.1 billion; Price-to-sales ratio: 1.0; WSSF Rating: Above Average) is North America’s largest paint producer. The company gets 60% of its sales from its over 3,300 paint stores. The slowdown in new U.S. housing construction has hurt demand for Sherwin’s paints. As well, many consumers have put off home-renovation projects because of the recession. In the three months ended June 30, 2009, Sherwin’s earnings fell 8.0%, to $158 million from $171.7 million a year earlier. However, the company is an aggressive buyer of its own shares, so it had fewer shares outstanding during the quarter. As a result, earnings per share fell 6.9%, to $1.35 from $1.45. Sales fell 12.6%, to $1.9 billion from $2.2 billion....
PROCTER & GAMBLE CO. $57 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.9 billion; Market cap: $165.3 billion; Price-to-sales ratio: 2.1; WSSF Rating: Above Average) is one of the world’s largest makers of household and personal-care products. Some of its top brands are Tide detergent, Head & Shoulders shampoo, Pampers diapers and Crest toothpaste. Procter is selling some of its slower-growing businesses and shifting its focus to those with better long-term prospects. In November 2008, it sold its Folgers coffee business for a $2-billion gain. Last August, it agreed to sell its prescription-drug division for $3.1 billion. The sale should close later this year. In the fiscal year ended June 30, 2009, Procter’s earnings fell 4.3%, to $11.3 billion from $11.8 billion in the prior year. However, earnings per share rose 0.6%, to $3.58 from $3.56, on fewer outstanding shares. If you exclude unusual items in both years, earnings per share would have risen by 7.6%, to $3.67 from $3.41. Sales fell 3.3%, to $79 billion from $81.7 billion. Overseas markets account for 60% of Procter’s sales, and the higher U.S. dollar cut the value of these sales by $4 billion....
3M COMPANY $74 (New York symbol MMM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 698.3 million; Market cap: $51.7 billion; Price-to-sales ratio: 2.3; WSSF Rating: Above Average) is a diversified manufacturing firm. The company was formerly known as Minnesota Mining & Manufacturing. 3M owns a large number of well-known brands. Post-it notes, Scotch tape, Scotch-Brite household-cleaning products, Scotchguard protection and Thinsulate insulation are just a few. The company has six business segments. These are the industrial and transportation division, which supplies roughly 31% of 3M’s sales and 29% of its profits, health care (17%, 23%), safety, security and protection (14%, 14%), consumer and office (14%, 13%), display and graphics (13%, 11%), and electronics and communications (11%, 10%)....
In spite of the weak economy, governments around the world continue to invest heavily in wind projects and electrical-power grids. On Monday, for example, the Ontario government committed $2.3 billion over the next three years to expand and strengthen the province’s grid.
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Antiquated power grids can hold back wind power stocks
Upgrades to power grids are important to wind power stocks because, while most power plants are located near big cities to keep transmission costs down, wind farms tend to be in more remote areas with steady winds. As well, low transmission capacity, or none at all, has hurt the ability of wind power stocks to build new projects....
STANTEC INC. $28.57 (Toronto symbol STN; SI Rating: Extra Risk) (780-917-7288; www.stantec.com; Shares outstanding: 45.5 million; Market cap: $1.3 billion) sells a range of consulting, project delivery, design/build and technology services to clients in a number of markets. These markets include industry, environment, transportation and construction. The company has over 9,000 employees in 150 North American locations. In the three months ended June 30, 2009, Stantec’s revenue rose 13.0%, to $388.1 million from $343.3 million a year earlier. However, excluding acquisitions and foreign-exchange gains, revenue actually fell by $49.8 million. The company’s earnings rose 1.1%, to $22.4 million, or $0.49 a share, from $22.1 million, or $0.48 a share, a year earlier. Higher costs pushed down Stantec’s profit margins in the quarter....
FIRSTSERVICE CORP. $18.58 (Toronto symbol FSV; SI Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 28.1 million; Market cap: $522.3 million) operates in the following areas of the real-estate services market: commercial real estate; residential property management; and property services. FirstService has more than 17,000 employees. In the three months ended June 30, 2009, FirstService’s revenue fell 6.5%, to $425.3 million from $454.8 million a year earlier. (All figures except share price in U.S. dollars.) Earnings per share fell 17.9% to $0.46 from $0.56. FirstService’s overall revenue was held back by a 32% drop at its commercial real-estate division. However, that was partially offset by a 42% revenue gain at its property-services division, which helps maintain foreclosed houses in the U.S. As well, residential property management posted a 3% rise....
CIMAREX ENERGY $43.10 (New York symbol XEC; SI Rating: Extra Risk) (303-295-3995; www.cimarex.com; Shares outstanding: 83.4 million; Market cap: $3.6 billion) is an oil and gas explorer and producer that mainly operates in the U.S. Natural gas makes up 70% of its production. Cimarex has properties in western Oklahoma; Kansas; the upper Gulf Coast regions of Texas and southern Louisiana; the Permian Basin area of western Texas; and the Gulf of Mexico. In the three months ended June 30, 2009, the company produced an average of 453.9 million cubic feet of natural gas per day. That’s down 7% from a year earlier. Cimarex slowed drilling and production to await higher gas prices....
DEVON ENERGY CORP. $72.21 (New York symbol DVN; SI Rating: Speculative) (405-235-3611; www.devonenergy.com; Shares outstanding: 443.8 million; Market cap: $32.0 billion) is one of the largest independent U.S.-based oil and gas explorers and producers. Its production mix is about 65% gas and 35% oil. Devon’s properties are mainly in Canada and the U.S. Aside from conventional production, they include shale oil in northern Texas, oil sands in Canada and deep-water wells in the Gulf of Mexico. In the three months ended June 30, 2009, lower oil and gas prices caused Devon’s cash flow per share to drop 56.2%, to $2.71 from $6.19....
Forecasts are now popping up regularly in the media predicting that the H1N1 virus (also known as “swine flu”) will flare up in North America when the flu season begins in just a few weeks. There is still a wide difference of opinion on the subject, and it’s far from certain that H1N1 will pose a significant threat. Nonetheless, health authorities around the world are mostly erring on the side of caution. In the United States, the Centers for Disease Control and Prevention (CDC) is working with federal and state agencies on an H1N1 vaccine-distribution effort that will include as many as 90,000 sites across the country. This massive H1N1 vaccination effort is benefitting McKesson Corp. (New York symbol MCK), one of the drug stocks we zero in on in the most recent issue of our Wall Street Stock Forecaster newsletter....