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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TERADATA CORP. $26 (New York symbol TDC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 179.7 million; Market cap: $4.7 billion; WSSF Rating: Average) was a wholly owned subsidiary of NCR Corp. until October 1, 2007. NCR stockholders received one Teradata share for each NCR share held. Teradata helps businesses capture, store and analyze a wide variety of data, such as customer buying habits. That helps its clients make better decisions, and expand profits. The stock got as high as $30 just after it began trading. It then fell to $20 in April 2008 due to fears that the slowing economy would prompt businesses to delay or cut capital spending. In the first quarter of 2008, Teradata’s earnings grew 16.7%, to $0.28 a share from $0.24 a year earlier. The latest figure excludes costs related to the spinoff from NCR. Revenue rose 2.2%, to $375 million from $367 million, largely due to favorable foreign exchange rates. Overseas customers account for about 45% of Teradata’s total revenue....
BROADRIDGE FINANCIAL SOLUTIONS INC. $23 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding; 140.1 million; Market cap: $3.2 billion; WSSF Rating: Extra risk) was a subsidiary of Automatic Data Processing Inc. (ADP) until April 2, 2007. ADP investors received one Broadridge share for each ADP share held. Broadridge 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. The stock fell to $15.25 in April 2008 due to concerns that its clearing services subsidiary, Ridge Clearing & Outsourcing, was taking on too much risk given today’s difficult financial environment. However, Ridge Clearing accepts only high quality, readily marketable securities as collateral....
NORDSTROM INC. $34 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 216.9 million; Market cap: $7.4 billion; WSSF Rating: Average) operates 105 fullservice department stores, as well as 54 smaller stores that sell shoes and clearance merchandise. Nordstrom prefers to focus on affluent shoppers. These customers are less likely to cut spending in the face of rising fuel costs. However, about a third of Nordstrom’s stores are in California, and falling home prices have hurt its overall sales. In Nordstrom’s first fiscal quarter ended May 3, 2008, sales fell 2.6%, to $1.9 billion from $1.95 billion a year earlier. Same-store sales dropped 6.5%. Earnings fell 24.2%, to $119 million from $157 million, due to costly markdown sales. However, pershare earnings declined just 10.0%, to $0.54 from $0.60, on fewer shares outstanding....
J.C. PENNEY CO. INC. $41 (New York symbol JCP, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 220.0 million; Market cap: $9.0 billion; WSSF Rating: Average) operates 1,074 department stores throughout the United States. In response to the recent slowdown in consumer spending, Penney has scaled back its expansion plans. It also aims to cut its inventory levels. That should help it stay profitable, and let it keep paying its $0.80 dividend (2.0% yield). In the three months ended May 3, 2008, earnings fell 48.1%, to $0.54 a share from $1.04 a year earlier. Slow sales forced Penney to cut selling prices to clear unsold seasonal merchandise. Sales fell 5.8%, to $4.1 billion from $4.35 billion. Same-store sales declined 7.4%....
MACY’S INC. $23 (New York symbol M, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 420.5 million; Market cap: $9.7 billion; WSSF Rating: Average) operates 850 department stores under the Macy’s and Bloomingdale’s banners. Macy’s now aims to cut its annual expenses by $100 million with a new restructuring plan, including consolidating seven of its regional offices into four centers. Due to these restructuring costs, Macy’s lost $0.14 a share (total $59 million) in the three months ended May 3, 2008. It earned $0.11 a share ($52 million) a year earlier. If you exclude all unusual items, earnings per share fell 87.5%, to $0.02 from $0.16. Sales in the quarter fell 3.4%, to $5.7 billion from $5.9 billion. Same-store sales declined 2.6%....
WAL-MART STORES INC. $57 (New York symbol WMT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 4.0 billion; Market cap: $228.0 billion; WSSF Rating: Above average) is the world’s largest retailer, with over 7,200 stores. About 55% of its stores are in the United States. The company has had trouble winning approval to expand in certain urban areas. Consequently, it will probably open just 140 new stores in the U.S. this year compared with 191 in the previous fiscal year. Instead, Wal-Mart will focus on expanding its international operations, particularly in fast-growing markets such as China, India and Brazil. Wal-Mart’s low prices continue to attract customers away from other retailers....
HEWLETT-PACKARD CO. $47 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.5 billion; Market cap: $117.5 billion; WSSF Rating: Above average) is one of the world’s leading makers of computers and electronic devices. Products include printers and digital cameras (27% of 2007 revenue, 41% of profits); personal computers (34%, 18%); business computers (18%, 19%); computer services (16%, 17%); financing, software and other (4%, 4%). Hewlett’s profits grew from $1.16 a share (total $3.6 billion) in 2003 to $2.68 a share ($7.3 billion) in 2007, largely due to a successful restructuring plan following its 2002 acquisition of Compaq Computer. Revenue rose from $73.1 billion in 2003 to $104.3 billion in 2007. Right now, most of Hewlett’s growth comes from sales of cyclical, low-margin computers and printers. It now aims to expand its higher-margin businesses. This includes computer consulting, which helps businesses manage their computing hardware and software needs. These services give Hewlett predictable revenue streams, and generate profit margins two to three times higher than hardware sales....
AT&T INC. $39 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 6.0 billion; Market cap: $234.0 billion; WSSF Rating: Average) provides traditional local and long-distance services to over 61 million customers in 22 states. It also has 70 million wireless subscribers nationwide, and 14.2 million high-speed Internet customers. AT&T recently paid $6.6 billion for 700-MHz wireless spectrum licenses in a government auction. That’s equal to 39% of the $17.0 billion or $2.76 a share it earned in 2007. These airwaves can travel longer distances and penetrate thicker walls than regular 1,900-MHz cellular frequencies. That means AT&T needs fewer towers to cover the same area. The new spectrum will help the company take advantage of growing consumer and business demand for faster wireless downloads. New wireless services should generate higher profits for AT&T than regular voice calls....
VERIZON COMMUNICATIONS INC. $36 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $104.4 billion; WSSF Rating: Average) has over 140 million traditional phone customers in 28 states. It also has 59 million wireless service customers in 50 states. Subsidiary Verizon Wireless paid $9.4 billion for its 700-MHz spectrum licenses. Verizon owns 55% of this business, so its share of the purchase works out to $5.2 billion. That’s equal to 75% of its 2007 earnings of $6.9 billion or $2.37 a share. Verizon is starting to enjoy the benefits of its FiOS (Fiber-Optic Service) project, which gives customers a bundle of TV signals and other services. FiOS now has over one million subscribers, which makes it the 10th-largest cable provider in the United States....
MTS SYSTEMS CORP. $32 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 17.5 million; Market cap: $560.0 million; WSSF Rating: Average) makes equipment and software that carmakers and other manufacturers use to test the mechanical behavior of materials, machines and structures. This helps them reduce production errors and costs. Testing systems provide 80% of MTS’s revenue. The company also makes sensors that improve the performance of automated industrial machinery. MTS operates in a narrow field and gets most of its revenue from customers in cyclical industries, such as automotive and aerospace. That makes it riskier than Genuine Parts and Snap-On. MTS spends around 5% of its revenue of $24 a share on research. That helps it maintain its leading share of its niche markets. Overseas markets also supply two-thirds of its revenue, which cuts its exposure to the struggling North American auto industry....