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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INVACARE CORP. $15 (New York symbol IVC; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 32.2 million; Market cap: $483.0 million; WSSF Rating: Average) makes wheelchairs, motorized scooters and other mobility and home care products. Many of Invacare’s customers rely on reimbursements from the Medicare and Medicaid programs to fund purchases of motorized wheelchairs and breathing apparatus. Due to new restrictions on payouts, Invacare’s stock has dropped by 70% since 2004. The U.S. government recently delayed further changes to the Medicare and Medicaid plans. Still, the ongoing uncertainty forced Invacare to aggressively restructure its operations, including shifting production to low-cost countries and simplifying its product lines. These measures should cut its annual costs by $20 million....
BECKMAN COULTER INC. $42 (New York symbol BEC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 62.7 million; Market cap: $2.6 billion; WSSF Rating: Average) makes lab equipment that doctors and medical researchers use to detect substances in bodily fluids. Demand for Beckman’s automated systems remains strong among hospitals and clinics, offsetting lower sales to university labs due to lower government funding. Hospitals prefer Beckman’s systems, since they they require little human interaction. That helps cut their costs. Accurate detection of diseases also reduces the length of hospital stays for patients. In the three months ended September 30, 2008, Beckman earned $26.1 million, down 55.3% from $58.4 million a year earlier. Earnings per share fell 54.9%, to $0.41 from $0.91. If you disregard unusual items, earnings per share rose 1.3%, to $0.78 from $0.77. Revenue grew 13.4%, to $758.8 million from $669.0 million, partly due to an acquisition. It currently holds cash of $71.4 million or $1.14 a share. Long-term debt of $927.6 million is equal to roughly two years’ cash flow....
BAXTER INTERNATIONAL INC. $52 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 620.2 million; Market cap: $32.3 billion; WSSF Rating: Average) makes medical equipment through three main divisions. Medical Delivery makes intravenous equipment and systems (38% of 2007 sales); BioScience makes various vaccines and drugs (41%); and Renal makes dialysis equipment (20%). Other products account for the remaining 1% of sales. Baxter continues to enjoy the benefits of its plan to focus on its more profitable operations, particularly vaccines and drugs that treat hemophilia, immune disorders and infectious diseases. The company has also sold its less profitable businesses, and cut costs. In the third quarter of 2008, Baxter’s earnings grew 22.9%, to $563 million from $458 million a year earlier. Earnings per share rose 25.7%, to $0.88 from $0.70, on fewer shares outstanding. These figures exclude unusual items. Revenue rose 14.5%, to $3.15 billion from $2.75 billion....
C.R. BARD INC. $82 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 99.2 million; Market cap: $8.1 billion; WSSF Rating; Above average) makes medical devices in four main areas: Vascular products such as stents and catheters (25% of 2007 sales); Urology products such as drainage and incontinence devices (30%); Oncology products that detect and treat various types of cancer (25%); and Surgical Tools and other products (20%). In June, 2008, Bard paid $70.7 million for Specialized Health Products International Inc. This company makes needles for syringes that reduce the risk of accidental punctures. That helps prevent the spread of infectious diseases. The purchase strengthened Bard’s vascular product portfolio. Thanks to this acquisition, plus higher selling prices, Bard’s revenue in the three months ended September 30, 2008 rose 13.2%, to $616.8 million from $544.8 million a year earlier. International markets account for about 30% of Bard’s sales. If you disregard favorable foreign exchange rates, sales rose 11%....
INTERNATIONAL BUSINESS MACHINES CORP. $86 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $111.8 billion; WSSF Rating; Above average) is the world’s largest computer company, with operations in over 170 countries. It specializes in large mainframe computers for governments and corporations. The company now gets over 50% of its revenue from its service division. Steady revenue streams from long-term contracts for designing and maintaining computer systems cuts IBM’s risk. IBM continues to expand its software operations, mostly through acquisitions. The company is now the world’s second-largest software maker after Microsoft Corp. Owning its own software business makes it easier for IBM to design and build customized computer systems for its clients. As well, using its own software lets IBM avoid paying licensing fees to other software makers....
DEVON ENERGY CORP. $68.66 (New York symbol DVN; SI Rating: Speculative) (405-235-3611; www.devonenergy.com; Shares outstanding: 441.5 million; Market cap: $30.3 billion) is one of the largest U.S.-based independent oil and gas explorers and producers. Devon’s properties are located mainly in the United States and Canada. This includes conventional production, as well as shale oil in north Texas, oil sands in Canada and deep-water wells in the Gulf of Mexico. In the three months ended September 30, 2008, Devon’s revenues rose 116.4%, to $6 billion from $2.8 billion a year earlier. Cash flow rose 58.7%, to $2.6 billion, or $5.93 a share, from $1.7 billion or $3.71 a share....
CIMAREX ENERGY $27.96 (New York symbol XEC; SI Rating: Extra risk) (303-295-3995; www.cimarex.com; Shares outstanding: 83.3 million; Market cap: $2.3 billion) is an oil and gas explorer and producer primarily focused in western Oklahoma, Kansas, the upper Gulf Coast areas of Texas and South Louisiana, the Permian Basin area of West Texas, plus the Gulf of Mexico. Cimarex’s production averaged 484.9 million cubic feet equivalent per day in the latest quarter. Natural gas makes up 72% of output. Production for the full year 2008 will likely average 485 million cubic feet. In the three months ended September 30, 2008, cash flow per share rose 76%, to $5.07 from $2.88. The company’s shares trade at just 1.5 times cash flow based on the 12 months. Long-term debt of $487 million is 20% of market cap....
CANALASKA VENTURES $0.08 (Toronto symbol CVV; SI Rating: Start-up) (1-800-667-1870; www.canalaska.com; Shares outstanding: 137.7 million; Market cap: $10.3 million) holds nineteen 100%-owned uranium projects in the Athabasca Basin region of Saskatchewan. The company has added partners to help pay for exploration drilling....
AMERIGO RESOURCES $0.36 (Toronto symbol ARG; SI Rating: Speculative) (604-681-2802; www.amerigoresources.com; Shares outstanding: 93.4 million; Market cap: $33.1 million) processes copper from the tailings (waste rock) from Chile’s El Teniente, the world’s largest underground copper mine. In the three months ended September 30, 2008, Amerigo’s revenues rose 4.8%, to $29.9 million from $28.5 million a year earlier on record production. (All figures except share price in U.S. dollars.) However, cash flow per share fell 66.7%, to $0.03 a share from $0.09. That was largely due to higher costs, as well as lower copper prices, Copper prices have dropped over 67% from a high of $4.10 in June, to $1.31 today. Still, the long-term production outlook for the company is positive, and copper prices should recover with the economy. Amerigo has positive cash flow. It also holds cash of $4.3 million and has low debt....
BAFFINLAND IRON MINES $0.15 (Toronto symbol BIM; SI Rating: Start-up) (416-364-8820; www.baffinland.com; Shares outstanding: 233.1 million; Market cap: $35.0 million) is now looking for a major partner for its Mary River iron ore project on Baffin Island. Baffinland still hopes to start building an open-pit mine in 2010, with completion scheduled for 2014. It then aims to produce 18 million tonnes of ore per year for over 21 years. The company recently raised $21 million in a share issue. Baffinland is a buy for highly aggressive investors.