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.
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GENERAL MILLS INC. $55 (New York symbol GIS; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 329 million; Market cap: $18.1 billion; Price-to-sales ratio: 1.3; WSSF Rating: Above Average) is the second-largest maker of breakfast cereals in the United States after Kellogg. Its main brands include Cheerios, Wheaties and Total. The company also makes Betty Crocker baking mixes, Green Giant canned and frozen vegetables and Yoplait yogurt. General Mills will probably report earnings of $3.92 a share in its latest fiscal year, which ended May 31, 2009. That’s slightly higher than its previous forecast of $3.87 to $3.89. These figures exclude unusual items, mainly gains and losses on hedging contracts that General Mills uses to lock in prices for wheat, corn and other raw materials. The company raised its selling prices last year in order to offset higher prices for these raw materials. Since then, these costs have stabilized; this was the main reason behind the higher earnings forecast. It also expects a lower income-tax rate in the fourth quarter of fiscal 2009....
CONAGRA FOODS INC. $20 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 447.2 million; Market cap: $8.9 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) makes a number of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter and Orville Redenbacher popcorn. In its third fiscal quarter, which ended February 22, 2009, ConAgra’s earnings per share rose 17.6%, to $0.40 from $0.34 a year earlier. These figures exclude several non-recurring items, but they include a $0.05-a-share gain on hedging contracts, which ConAgra uses to lock in costs for wheat, corn and other ingredients. As well, ConAgra paid $0.03 a share in legal costs related to a 2007 peanut-butter recall that was caused by a salmonella outbreak. Sales rose 6.1%, to $3.1 billion from $3 billion. ConAgra raised its selling prices because of higher raw-material costs. This offset lower sales volumes....
UNITED TECHNOLOGIES CORP. $51 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 942 million; Market cap: $48 billion; Price-to-sales ratio: 0.9; WSSF Rating: Above Average) has six main businesses: Carrier makes heating and air-conditioning equipment (25% of 2008 revenue, 17% of profit); Otis makes and services elevators (22%, 32%); Pratt & Whitney makes aircraft engines (22%, 27%); Hamilton Sundstrand makes electronic controls for aircraft (11%, 13%); UTC Fire & Security sells burglar alarms and fire-protection services (11%, 6%); and Sikorsky makes helicopters (9%, 5%). The U.S. government is United Technologies’ biggest customer, and accounts for about 13% of its yearly revenue. We feel that United Technologies’ diversification is one of its major strengths. All of its businesses are leaders in their industries. Plus, the company sells products to both original-equipment manufacturers and aftermarket customers. That cuts its risk. For example, when demand for new planes is weak, airlines will probably buy more replacement parts instead of new aircraft. When the economy improves, aircraft makers will order more new engines and electronics. This will offset lower sales of spare parts....
TRILOGY ENERGY TRUST $6.52 (Toronto symbol TET.UN; SI Rating: Speculative) (403-290-2900; www.trilogyenergy.com; Units outstanding: 95.4 million; Market cap: $622.2 million) holds oil and gas properties in the Kaybob and Grande Prairie areas of central Alberta. Trilogy’s production is weighted approximately 78% toward natural gas and 22% to oil. In the three months ended March 31, 2009, Trilogy produced 20,211 barrels of oil equivalent per day. This was virtually unchanged from a year earlier. Trilogy’s $300.1-million debt is a somewhat high 46% of its market cap. To conserve cash and pay down debt, the trust cut its monthly distribution by 50% last February. The new $0.05 distribution gives the units a 9.2% yield. The lower distribution also reduced the trust’s payout to unitholders to just 40% of its cash flow....
TRUE ENERGY TRUST $0.81 (Toronto symbol TUI.UN; SI Rating: Speculative) (403-264-8875; www.trueenergy.ab.ca; Units outstanding: 78.5 million; Market cap: $63.6 million) produces oil and gas in Alberta and Saskatchewan. Gas makes up about 62% of its output. In the three months ended March 31, 2009, production fell 26.3%, to 9,981 barrels of oil equivalent per day from 13,552 a year earlier. True cut its capital spending to conserve cash and pay down its $196.3-million debt, which is a high 291% of its market cap. The cut was the main reason for the production drop. True also suspended its monthly distribution with the March 2009 payment....
ZARGON ENERGY TRUST $16 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264-9992; www.zargon.ca; Units outstanding: 22.4 million; Market cap: $359.0 million) produces oil and gas in Alberta, Manitoba, Saskatchewan and North Dakota. Its output is weighted 51% toward natural gas and 49% to oil. In the three months ended March 31, 2009, Zargon’s production rose 2.2%, to 9,213 barrels of oil equivalent per day (this measurement includes natural gas) from 9,015. As well, Zargon recently paid $41.4 million for Masters Energy. This will add 1,275 barrels of oil equivalent per day to Zargon’s production, bringing it to an expected average of 10,200 barrels per day this year. Zargon’s $85.8-million debt is low, at around 23% of its market cap. The trust’s $0.18 monthly distribution gives the units a 13.5% yield. Zargon flows just 50% of its cash flow through to unitholders, so a distribution cut is unlikely....
AMERIGO RESOURCES $0.39 (Toronto symbol ARG; SI Rating: Speculative) (604-681-2802; www.amerigoresources.com; Shares outstanding: 132.1 million; Market cap: $51.5 million) processes copper and molybdenum from the tailings (waste rock) from Chile’s El Teniente, the world’s largest copper mine. In the three months ended March 31, 2009, Amerigo’s revenue fell 63.8%, to $29.9 million from $38.9 million a year earlier. (All figures except share price in U.S. dollars.) Sale prices for copper fell 48.9% during the quarter, and molybdenum prices dropped 73.4%. The company lost $0.04 a share, compared to a profit of $0.07 a share a year earlier. Still, Amerigo’s long-term outlook is bright, and copper and molybdenum prices are rising. The company holds cash of $3.5 million, and has little debt....
MIRANDA GOLD $0.40 (Toronto symbol MAD; SI Rating: Start-up) (604-689-1659; www.mirandagold.com; Shares outstanding: 44.9 million; Market cap: $18.0 million) is a gold exploration company mainly focused on Nevada. Miranda holds $12 million in cash. That’s enough for four to five years of exploration. The company also has joint ventures with Montezuma Mines, Piedmont Mining Company, White Bear Resources and Queensgate Resources. These partners pay for high-risk early drilling on Miranda’s properties. They get interests in these properties in return. Miranda is a buy for highly aggressive investors....
CANALASKA URANIUM $0.17 (Toronto symbol CVV; SI Rating: Start-up) (1-800-667-1870; www.canalaska.com; Shares outstanding: 137.8 million; Market cap: $23.4 million) owns twenty uranium projects in Saskatchewan’s Athabasca Basin region. CanAlaska has added partners to help pay for exploration drilling. These include Japan’s giant Mitsubishi Corp., plus a consortium of Korean companies, including Hanwha Corporation, Korea Electric Power, Korea Resources and SK Energy. CanAlaska holds cash of $8 million, and has no debt. CanAlaska Uranium is a buy for highly aggressive investors....
BAFFINLAND IRON MINES $0.49 (Toronto symbol BIM; SI Rating: Start-up) (416-364-8820; www.baffinland.com; Shares outstanding: 255.3 million; Market cap: $123.8 million) is looking for a major partner for its main Mary River iron-ore project on Baffin Island. Baffinland still hopes to start building an open-pit mine at the site next year, and plans to finish it by 2014. It then aims to produce 18 million tonnes of ore per year for over 21 years. Baffinland holds a high cash balance of $26.1 million. Baffinland is a buy for highly aggressive investors....