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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SNAP-ON INC. $37 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 57.4 million; Market cap: $2.1 billion; WSSF Rating: Average) makes hand and power tools for auto mechanics. Like Genuine Parts, Snap-On should benefit from slowing new car sales and rising demand for repair and maintenance services. It also sells its products through a fleet of franchised vans that visit garages. This way, dealers can form long-term relationships with their customers. That gives it an advantage over competitors, and should help it keep paying its $1.20 dividend (3.2% yield). Snap-On is also expanding overseas, which cuts its exposure to a slowing North American economy. It recently paid $15.1 million for 60% of a Chinese company that makes hand tools. Foreign operations now supply roughly 40% of Snap-On’s revenue....
GENUINE PARTS CO. $35 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 161.8 million; Market cap: $5.7 billion; WSSF Rating: Average) distributes automotive replacement parts to over 4,800 independent outlets in North America. It also operates over 1,100 auto parts stores under the NAPA banner. As well, the company distributes industrial parts, office furniture and electrical equipment. Genuine Parts has increased its dividend for 52 consecutive years. The current rate of $1.56 a share yields 4.5%. The stock has moved down from $50 in November, 2007. That’s partly due to its exposure to the slowing automotive industry, which accounts for half of its revenue and earnings. However, a drop in new car sales is good news for Genuine Parts. As more drivers choose to maintain their current vehicles instead of buying new ones, demand for replacement parts is likely to rise....
BRIGGS & STRATTON CORP. $14 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 49.8 million; Market cap: $697.2 million; WSSF Rating: Above average) is the world’s largest maker of engines for lawnmowers. It also makes other home and garden equipment such as pressure washers and snow blowers. Rising costs for gasoline and food have cut consumer spending on discretionary items such as gardening equipment. A colder-than-usual spring season also hurt sales. However, the company is doing a good job controlling costs as it cuts production to meet demand. As well, Hurricanes Gustav and Ike prompted increased sales of portable generators. Briggs should be able to keep paying its $0.88 dividend, which now yields 6.3%. Meanwhile, Briggs reported a loss for its first fiscal year ended September 30, 2008 of $0.04 a share (total $2.0 million). That’s a big improvement over the $0.42 a share ($20.8 million) it lost in the year-earlier quarter. Due to the seasonal nature of its lawnmower and gardening equipment businesses, Briggs usually loses money in its first quarter....
QUAKER CHEMICAL CORP. $17 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 million; Market cap: $180.2 million; WSSF Rating: Average) makes lubricants and specialty chemicals that protect industrial machinery from corrosion. The company recently raised its quarterly dividend for the first time since 2004, from $0.215 a share to $0.23. The new annual rate of $0.92 yields 5.4%. Quaker uses oil to make its products, so it gains from the recent drop in prices. However, the company’s prominent share of the narrow market it operates in makes it easier for it to pass along higher raw material costs to its customers. That should also help Quaker maintain the current dividend rate....
WELLS FARGO & CO. $31 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 3.3 billion; Market cap: $102.3 billion; WSSF Rating: Average) provides a wide variety of financial services to nearly eight million customers through roughly 6,000 branches and offices in 23 states. Internationally, it operates in Canada, the Caribbean and Central America. Warren Buffett’s Berkshire Hathaway holding company owns 9% of Wells Fargo’s shares. The company has now agreed to acquire WACHOVIA CORP. $5.71 (New York symbol WB, Conservative Growth Portfolio, Finance sector; Shares outstanding: 2.2 billion; Market cap: $12.6 billion; WSSF Rating: Extra risk). Wachovia stockholders will receive 0.1991 of a Wells Fargo common share for each Wachovia share they hold. The merger will make Wells Fargo one of the largest banks in the United States, with over 10,000 branches in 39 states and $713 billion in U.S. deposits ($787 billion in total deposits). It also gives Wells Fargo its first operations in the Atlantic Seaboard and southeastern U.S....
VERIZON COMMUNICATIONS INC. $31 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $89.9 billion; WSSF Rating: Average) provides telephone services to over 140 million customers in 28 states. Through 55%-owned Verizon Wireless, a joint venture with UK-based Vodafone, it also has 59 million wireless subscribers in 50 states. Verizon’s wireless operations supply about half of its revenues, but 75% of its profits. These figures should rise now that Verizon Wireless has agreed to buy privately held Alltel Corp., which provides wireless services to 13 million customers in mainly rural areas of 34 states. The purchase will make Verizon Wireless the largest wireless provider in the United States, with over 80 million customers. Verizon Wireless will pay $5.9 billion in cash and assume Alltel’s debt of $22.2 billion, for a total price of $28.1 billion. Verizon’s share works out to $15.5 billion. Verizon feels the merger will generate annual cost savings of $1 billion in the second year after closing....
APACHE CORP. $113 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 334.5 million; Market cap: $37.8 billion; WSSF Rating: Average) explores for and produces oil and gas, mostly in North America. It also has operations in the UK, Argentina, Australia and Egypt. Oil accounts for about 67% of its production. Thanks to record high oil and gas prices, Apache’s earnings in the three months ended June 30, 2008 jumped to $4.28 a share (total $1.4 billion) from $1.89 a share ($632.1 million) a year earlier. Cash flow per share rose 57.0%, to $6.94 from $4.42. Revenue grew 57.7%, to $3.9 billion from $2.5 billion. Apache prefers to sell its oil at spot prices, instead of using supply contracts or hedges to lock in prices. Thanks to this strategy, Apache’s stock shot up to $149 in May, 2008, but has since moved down to its current price on lower oil prices....
ENCANA CORP. $70 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 750.2 million; Market cap: $52.5 billion; WSSF Rating: Average) is a major North American producer of natural gas (about 80% of total production) and oil (20%). EnCana prefers to focus on what it calls “key resource plays”, including early-stage natural gas fields and oil sands projects. These assets cost more to develop, at least initially, but can last decades longer than conventional properties. The stock rose to a new peak $99 in May, 2008, partly due to EnCana’s plan to split itself up into two companies — one focusing on natural gas, the other on oil sands and oil refineries. Stockholders will receive one new common share in each new company for every EnCana share they hold. EnCana aims to complete the plan early next year....
CHEVRON CORP. $85 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $178.5 billion; WSSF Rating: Above average) is the secondlargest integrated oil company in the United States after ExxonMobil. Production accounts for about 80% of its earnings. The remaining 20% comes from refineries and retail gas stations. Chevron’s revenue in the second quarter of 2008 rose 47.9%, to $83.0 billion from $56.1 billion a year earlier. However, earnings rose just 15.1%, to $2.90 a share (total $6.0 billion) from $2.52 a share ($5.4 billion). That’s mainly because Chevron’s refineries had to pay about 70% more for crude oil. Due to the combination of lower sales and higher operating costs, the company’s U.S. refineries lost $682 million in the latest quarter. Cash flow per share in the quarter rose 29.4%, to $7.66 from $5.92. The stock hit a new all-time high of $105 in May, 2008, but fell to $78 in September as oil prices fell to about $90 a barrel. However, the stock has moved up to its current price due to the recent surge in oil to $110 a barrel....
YUM! BRANDS INC. $35 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 468.7 million; Market cap: $16.4 billion; WSSF Rating: Average) operates over 35,000 restaurants in over 100 countries. It has five main banners: KFC (fried chicken), Pizza Hut, Taco Bell (Mexican food), A&W (hamburgers) and Long John Silver (seafood).