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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BROADRIDGE FINANCIAL SOLUTIONS INC. $14 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 141.4 million; Market cap: $2.0 billion; Price-to-sales ratio: 1.0; WSSF Rating: Extra Risk) offers services to the investment industry in three main areas: investor communications, securities processing, and transaction clearing. Broadridge mails and processes 70% of all proxy votes. Broadridge’s revenue in its first fiscal quarter, ended September 30, 2008, rose 4.7%, to $472.4 million from $451.2 million a year earlier. It typically sells its services under long-term contracts that provide it with steady revenue streams. This cuts its risk. However, earnings fell 1.1%, to $35.6 million from $36.0 million. The drop was mainly due to the timing of extra expenses stemming from investments in technology and new products. Earnings per share fell 3.8%, to $0.25 from $0.26 on more shares outstanding. The company will probably earn $1.48 a share in fiscal 2009, and the stock trades at 9.5 times that estimate. The $0.28 dividend yields 2.0%....
LIZ CLAIBORNE INC. $2.84 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 94.7 million; Market cap: $268.9 million; Price-to-sales ratio: 0.1; WSSF Rating: Extra Risk) designs and sells clothing and accessories for men and women under about 20 different brands, including Juicy Couture, Kate Spade, Lucky Brand and Mexx. It mainly sells its products through department stores, and its own 600-store chain. The company expects that it lost up to $0.15 a share in the fourth quarter of 2008, because of heavy discounting by department stores. It had earlier forecast earnings of between $0.19 and $0.24 a share. Falling prices at department stores also forced Liz Claiborne to cut prices at its own stores to stay competitive. Liz Claiborne continues to make progress with its restructuring, including selling or discontinuing lessprofitable brands. It has also hired prominent fashion designer Isaac Mizrahi to overhaul its main “Liz Claiborne” line of women’s sportswear and accessories....
JONES APPAREL GROUP INC. $4.17 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 83.4 million; Market cap: $347.8 million; Price-to-sales ratio: 0.1; WSSF Rating: Average) designs clothing, accessories and footwear for men and women. Major brands include Jones New York, Gloria Vanderbilt and Nine West. Department stores account for the bulk of Jones’s sales. The company also operates around 1,000 of its own retail stores and outlets. Jones continues to cut costs and lower inventories to deal with the slumping economy. It feels these moves will save it $33 million a year. The company also plans to conserve cash by cutting capital spending by 35.7%, to $45 million in 2009 from $70 million in 2008. As well, it has cut its quarterly dividend by 64.3%, to $0.05 a share from $0.14. The new annual rate of $0.20 yields 4.8%. The lower dividend should save it $30 million a year....
LIMITED BRANDS INC. $9.15 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 322.1 million; Market cap: $2.9 billion; Price-to-sales ratio: 0.4; WSSF Rating: Average) operates two main retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (soaps and bath oils). It also operates the La Senza (lingerie) chain in Canada and 30 other countries. In December 2008, Limited Brands’ overall same-store sales fell 10%. The slowing economy forced the company to lower prices to lure customers and clear out older inventory. Same-store sales fell by 9% at Victoria’s Secret, 10% at La Senza and 11% at Bath & Body Works. Its successful restructuring over the past two years will continue to help Limited Brands cope with the slowdown. As part of this plan, it sold 75% of its Express and Limited casual clothing chains, which generate lower profits than its other operations. Workforce reductions, lower inventory levels and other measures have also saved it $150 million a year....
NEWMONT MINING CORP. $39 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 454.3 million; Market cap: $17.7 billion; Price to- sales ratio: 3.4; WSSF Rating: Average) is one of the world’s largest gold mining companies, with major operating gold mines in the United States, Canada, Australia, Peru, Bolivia and Ghana. Gold accounts for about 85% of Newmont’s revenue. The remaining 15% comes from copper, zinc and other metals. Most of Newmont’s copper comes from its 45% stake in the large Batu Hijau mining complex in Indonesia. Newmont reached its current size mainly through its 2002 acquisitions of Canada’s Franco-Nevada Mining Corp. and Australia’s Normandy Mining Ltd. As part of these acquisitions, Newmont inherited their hedging contracts, which let them lock in future delivery prices. However, Newmont prefers to sell its gold at the floating price. The company maximizes profit by adjusting production based on the prevailing price....
TRUE ENERGY TRUST $1.25 (Toronto symbol TUI.UN; SI Rating: Speculative) (403-264-8875; www.trueenergy.ab.ca; Units outstanding: 78.5 million; Market cap: $98.1 million) produces oil and gas, mostly in Alberta and Saskatchewan. About 65% of output is gas. In the three months ended September 30, 2008, production fell 6.4%, to 11,263 barrels of oil equivalent per day, from 14,096 barrels. The decline came because True lowered capital spending to conserve cash. To further conserve cash, and to pay down debt, True cut its monthly distribution by 50% with the January 2009 payment, to $0.02 from $0.04. Debt of $197.3 million represents a high 101% of market cap....
TRILOGY ENERGY TRUST $5.41 (Toronto symbol TET.UN; SI Rating: Speculative) (403-290-2900; www.trilogyenergy.com; Units outstanding: 95.4 million; Market cap: $516.3 million) holds oil and gas properties in the Kaybob and Grande Prairie areas of central Alberta. Trilogy’s production is weighted approximately 80% toward natural gas and 20% to oil. In the three months ended September 30, 2008, Trilogy’s production rose 3.1%, to 20,394 barrels of oil equivalent per day, from 19,775 barrels per day a year earlier. Trilogy’s $325-million debt is somewhat high at 64% of market cap. To conserve cash for debt repayment, the trust has cut its monthly distribution starting in February 2009 by 50%, to $0.05 from $0.10. The new distribution gives the units a current yield of 11.1%. The lower distribution will also reduce the trust’s payout to unitholders to just 40% of cash flow....
ZARGON ENERGY TRUST $14.87 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264-9992; www.zargon.ca; Units outstanding: 18.4 million; Market cap: $274.1 million) has oil and gas production assets in Alberta, Manitoba, Saskatchewan and North Dakota. Output is weighted 53% toward natural gas and 47% to oil. In the three months ended September 30, 2008, Zargon’s production rose 9.9%, to 9,340 barrels of oil equivalent per day, from 8,501 barrels. Zargon’s $75-million debt is low, at around 27% of market cap. The trust’s monthly distribution of $0.18 gives the units a yield of 14.5%. Zargon flows just 47% of its cash flow through to its unitholders, so a distribution cut is unlikely, even if oil and gas prices remain low....
THE DUN & BRADSTREET CORP. $74 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 53.9 million; Market cap: $4.0 billion; WSSF Rating: Average) provides credit reports on individual companies. Clients use these reports to make lending and buying decisions. Despite the current turmoil, Dun & Bradstreet’s third-quarter earnings rose 14.1%, to $1.13 a share from $0.99 a year earlier. These amounts exclude unusual items. Revenue rose 9.2%, to $409.2 million from $374.7 million. Long-term debt of $684.0 million is equal to about three years’ cash flow. The company has launched several new innovative products that should expand long-term earnings. A good example is a new service that lets clients access its information products using their mobile phones. The company can create innovative new products like this from its existing databases at little cost....
MOODY’S CORP. $22 (New York symbol MCO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 239.8 million; Market cap: $5.3 billion; WSSF Rating: Average) provides independent credit ratings and other information on bonds and other securities. It also provides credit assessment services to banks and other lenders. Credit ratings account for 80% of Moody’s revenues. That’s makes it vulnerable to the slowing economy, as businesses stop issuing new securities to fund acquisitions or expansion projects. In the three months ended September 30, 2008, earnings fell 17.5%, to $113.0 million from $136.9 million a year earlier. Earnings per share fell 9.8%, to $0.46 from $0.51, on fewer shares outstanding. Revenue declined 17.4%, to $433.4 million from $525.0 million. Long-term debt of $750.0 million is a manageable 1.3 times its annual cash flow....