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. $55 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 57.6 million; Market cap: $3.2 billion; WSSF Rating: Average) makes hand and power tools for auto mechanics. The company distributes its products through a fleet of franchised vans that visit garages and service shops. This way, dealers can build long-term relationships with their customers. This business supplies 35% of Snap-On’s total revenue. The company also makes tools and equipment for non-automotive customers, including the construction, electrical and agricultural industries (40% of revenue). Most of the remaining 25% of Snap-On’s revenue comes from computerized diagnostic equipment and software. This business includes Snap-On’s 2006 acquisition of the Business Solutions division of ProQuest Co., which helps car dealers electronically access information about auto parts, warranties and service bulletins. These services help over 35,000 car dealers improve their billing and inventory management systems....
GENUINE PARTS CO. $42 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 165.3 million: Market cap: $6.9 billion; WSSF Rating: Average) distributes automotive replacement parts to over 4,800 independent outlets in North America. It also operates 1,100 retail stores under the NAPA banner. Automotive parts supply nearly half of its revenue and earnings. Genuine Parts also distributes industrial replacement parts (30% of revenue), office products (15%) and electrical equipment and supplies (5%). Most of Genuine Parts’ recent growth has come from its industrial and electrical businesses. Many North American plant operators are investing in automated production equipment, which helps cut their operating costs. Expanding sales at these businesses also help cut Genuine Parts reliance on auto parts for growth....
BECKMAN COULTER INC. $64 (New York symbol BEC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 62.7 million; market cap: $4.0 billion; WSSF Rating: Average) makes lab equipment that doctors and medical researchers use to detect substances in bodily fluids. The company sells most of its products to big hospitals and research laboratories. It has now installed more than 200,000 of its systems in over 130 countries. Beckman’s products aim to simplify and speed up complex tests. In fact, some of these systems can process over 1,400 chemical tests an hour. More timely and accurate information leads to faster treatment and can reduce a patient’s hospital stay....
CHEVRON CORP. $94 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $197.4 billion; WSSF Rating: Above average) has gained just 24% since January 2008. Oil is up 40% since then. In general, oil stocks have lagged because oil prices rise or fall in response to short-term changes in oil supply or demand, which can reverse overnight. Despite the recent gains, a slowing U.S. economy could spur a large drop in oil prices. We recommend conservative investors stick to industry leaders like Chevron. Its wide sources of revenue (production, refining and retail gas stations) helps shield it from volatile oil prices....
WYNDHAM WORLDWIDE $19.91 (New York symbol WYN; SI Rating: Extra risk) (973-753-6000; www.wyndhamworldwide.com; Shares outstanding: 177.0 million; Market cap: $3.5 billion) is one of the world’s largest hospitality companies. Wyndham Hotel Group has almost 6,540 franchised hotels and almost 550,600 hotel rooms worldwide. Wyndham’s RCI Global Vacation Network has 3.6 million members who have exchange access to over 67,000 vacation properties located in approximately 100 countries. Wyndham Vacation Ownership develops, markets and sells vacation ownership interests and provides consumer financing to owners through its network of approximately 145 vacation ownership resorts serving over 800,000 owners in North America, the Caribbean and the South Pacific. The company keeps reporting increased revenues and earnings, despite higher fuel prices and lower consumer confidence in the wake of the housing market slowdown. In the three months ended December 31, 2007, revenues rose 6.4%, to $1.03 billion from $970 million a year earlier. Earnings rose 13%, to $104 million from $92 million. Earnings per share rose 22.9%, to $0.59 from $0.48, on 7.8%fewer shares outstanding....
THE DUN & BRADSTREET CORP. $83 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 56.6 million; Market cap: $4.7 billion; WSSF Rating: Average) focuses on credit reports for individual companies, not bonds or asset-backed securities, so it’s less exposed to the problems in the mortgage industry than Moody’s or Standard & Poor’s. Dun & Bradstreet’s reports cover over 125 million companies in 200 countries. Clients use its products to make lending and buying decisions. The United States accounts for around 80% of its revenue. Corporate information accounts for 60% of Dun & Bradstreet’s revenue, and the slowdown in lending activity has hurt demand for its reports. The remaining 40% of its revenue comes from products and services that help clients expand sales and improve customer loyalty....
MOODY’S CORP. $37 (New York symbol MCO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 246.4 million; Market cap: $9.1 billion; WSSF Rating: Average) provides independent credit ratings and other information on bonds and other securities. The company also provides credit assessment services and software to banks and other lenders. Moody’s gets 40% of its revenue from outside the United States. Moody’s stock is down 51% from its all-time high of $76 in February 2007. The slowdown in the housing market has hurt demand for credit reports on securities backed by mortgages and other assets. These securities account for 40% of Moody’s rating business. Despite the credit market slowdown, Moody’s earnings in 2007 rose 3.1% to $677.8 million from $657.6 million in 2006. These figures exclude restructuring costs. Earnings per share rose 11.1%, to $2.50 from $2.25 on fewer shares outstanding. Revenue grew 15%, to $2.3 billion in 2007 from $2.0 billion in 2006, partly due to the fall in the U.S. dollar....
MCGRAW-HILL COMPANIES LTD. $38 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 320.7 million; Market cap: $12.2 billion; WSSF Rating: Average) has three main operations: financial information under the Standard & Poor’s brand (45% of sales in 2007, 75% of profit); school textbooks (40%, 22%); and the media division which includes BusinessWeek magazine and four TV stations (15%, 3%). Standard & Poor’s gets most of its income from charging fees for assigning a credit grade to bonds and other securities. Falling volumes of new bond issuances plus slowing corporate lending will likely hurt its short-term growth. However, Standard & Poor’s should gain from growing investor demand for investment-grade corporate bonds and government securities....
TOYOTA MOTOR CORP. ADRs $104 (New York symbol TM, Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.8 billion; Market cap: $187.2 billion; WSSF Rating: Above average) is the world’s second-largest car maker after General Motors. Each Toyota ADR represents two of Toyota’s common shares. The company spends about 4% of its revenue on research. This spending has helped Toyota take the lead in several new automotive technologies, including the hybrid gasoline/electric engine. Thanks to surging fuel prices, demand for hybrid vehicles is rising strongly. The company is also earning money by licensing its hybrid technology to other automakers. Toyota is now working on a hybrid car that users can recharge by plugging it into a household electrical outlet. That would give the electrical motor greater range, reducing the need to use the gasoline engine for short trips....
AUTODESK INC. $33 (Nasdaq symbol ADSK; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 230.9 million; Market cap: $7.6 billion; WSSF Rating: Average) is the largest maker of design software used in construction and engineering. It has now developed what it calls its “sustainability analysis dashboard”. This lets engineers and architects measure the environmental impact of design features. The Leadership in Energy and Environmental Design (LEED) Green Building Rating System, developed by the U.S. Green Building council, provides a set of standards for environmentally sustainable construction. Autodesk’s dashboard software lets users measure how many points a specific design feature will give them towards LEED certification. In the fiscal year ended January 31, 2008, Auto Desk earned $1.88 a share before unusual items, up 22.9% from $1.53 in the prior year. Revenue rose 22.2%, to $2.2 billion from $1.8 billion. It spent a high 22% of its fiscal 2008 revenue on research....