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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HONDA MOTOR CO. LTD. ADRs $33 (New York symbol HMC; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.8 billion; Market cap: $59.4 billion; WSSF Rating: Above average) gets just over 50% of its revenue from North America, so it’s more vulnerable to a falling U.S. dollar than Toyota. In Honda’s latest six-month period, overall car sales rose 5.8%. Sales rose 5% in North America, 28% in Europe and 15% in Asia (excluding Japan, where sales fell 15%). Revenue grew 11.5%, to $49.5 billion from $44.4 billion a year earlier. Earnings per ADR rose 38.1%, to $1.74 from $1.26. (Each Honda American Depository Receipt represents one Honda common share.) Despite tougher conditions in the U.S., Honda’s new models should let it increase its current market share of 9.3%. Honda is also preparing to meet tougher U.S. fuel economy standards with new hybrid cars....
TOYOTA MOTOR CORP. ADRs $106 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADR’s outstanding: 1.6 billion; Market cap: $169.6 billion; WSSF Rating: Above average) reported that its North American sales in the six months ended September 30, 2007 rose 2.3%, due to strong demand for the new Tundra pickup truck and Prius hybrid compact. Sales grew 18% in Japan, and 8% in Europe. Consequently, Toyota’s six-month revenue rose 9.3%, to $101.0 billion from $92.4 billion a year earlier. Earnings improved 18.8%, to $4.86 per ADR from $4.09 per ADR. (Each Toyota American Depository Share represents two of Toyota’s common shares.) North America accounts for about 40% of Toyota’s sales. Toyota’s sales in North America will probably slow in the second half of 2008. Florida and California account for 25% of its U.S. sales, so falling housing prices in these markets could force Toyota to rely on special incentives to keep inventories down. However, rising sales in developing countries will help offset slowing North American sales. For example, Toyota currently has 5% of China’s car market, but it aims to double its market share by 2010....
LIMITED BRANDS INC. $18 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 353.1 million; Market cap: $6.4 billion; WSSF Rating: Average) operates two retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (personal care products). In the past few months, the company has sold 75% of the Limited and Express casual clothing chains as part of its strategy to focus on its more profitable operations. The two sales gave Limited Brands a net pre-tax gain of $230 million. In its third fiscal quarter ended November 3, 2007, Limited Brands earned $0.03 a share (total $12 million). Due to the timing of the Limited and Express sales, the latest quarterly earnings included a pre-tax gain of just $0.04 a share ($24.5 million). The company earned $0.06 a share ($24 million) in the year-earlier quarter. Sales fell 9.5%, to $1.9 billion from $2.1 billion....
LIZ CLAIBORNE INC. $21 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 99.5 million; Market cap: $2.1 billion; WSSF Rating: Average) designs a wide variety of clothing and accessories for men and women. It sells most of its products though department stores. Liz Claiborne recently sold four of the roughly 40 brands it owns. It also merged two clothing lines with existing brands. The company aims to sell 12 more of its slower growing brands in the next few months. These sales will let Liz Claiborne focus on brands with higher profit potential, particularly brands aimed at younger shoppers such as Juicy Couture and Lucky Brand. An aggressive cost-cutting plan should also save the company $265 million a year by the end of 2010....
JONES APPAREL GROUP INC. $16 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 85.3 million; Market cap: $1.4 billion; WSSF Rating: Average) designs clothing, accessories and footwear under several brands, including Jones New York, Gloria Vanderbilt and Nine West. In September 2007, Jones sold its Barneys New York upscale clothing chain for $858.7 million. The company used the cash to buy back $496.9 million worth of its shares. Jones still has roughly $300 million remaining under its current authorization plan. If you exclude the gain from the Barneys sale and other unusual items, Jones’s earnings in the third quarter of 2007 fell 22.1%, to $51.7 million from $66.4 million a year earlier. Thanks to the share buyback, per-share earnings fell just 13.6%, to $0.51 from $0.59. Sales slipped to $1.03 billion from $1.08 billion, as warm weather in September hurt demand for winter clothing and boots....
AGILENT TECHNOLOGIES INC. $36 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 370.0 million; Market cap: $13.3 billion; WSSF Rating: Average) makes electronic test and measurement equipment. Manufacturers use these products to improve the reliability of a wide variety of electronic products, such as cell phones and communication network components. This business accounts for 60% of Agilent’s revenue. The remaining 40% comes from measurement equipment for medical research labs and drug developers. Agilent’s products also help government agencies test for biological and chemical contaminants in air, water, soil and food. Agilent’s revenue rose from $6.1 billion in 2003 (fiscal years end October 31) to $7.2 billion in 2004, but slipped to $6.9 billion in 2005. In 2006, revenue fell to $5.0 billion after Agilent sold its struggling chipmaking business. On October 31, 2006, Agilent handed out its remaining shares in its chip-testing subsidiary Verigy Ltd. (Nasdaq symbol VRGY) to its own stockholders as a special dividend. Despite the spin-off, Agilent’s revenue in 2007 rose to $5.4 billion....
CANADIAN TIRE CORP. $73 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $6.0 billion; SI Rating: Above average) is one of Canada’s leading retailers. Its 468 Canadian Tire stores sell a unique mix of automotive, household and sporting goods. The company also operates smaller retail chains Mark’s Work Wearhouse (casual clothing) and PartSource (auto parts), as well as 265 gas stations. In the mid-1990s, Canadian Tire began a major overhaul of its stores to make them more friendly to shoppers, including wider aisles and better signage and lighting. This helped it compete with big U.S. retailers such as Wal-Mart and Home Depot....
GENUINE PARTS CO. $49 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 167.9 million; Market cap: $8.2 billion; WSSF Rating: Average) distributes automotive replacement parts to over 4,800 independent outlets in North America. The company also operates 1,100 stores under the NAPA banner. It also distributes industrial parts, office supplies and electrical equipment. The auto parts business supplies about half of the Genuine Parts’ revenue. However, most of the company’s recent growth has come from its industrial parts division, which accounts for 30% of total sales. In the three months ended September 30, 2007, sales of industrial parts rose 7%, while auto parts sales grew just 3%. Overall sales rose 3.7%, to $2.8 billion from $2.7 billion a year earlier. Earnings rose 7.0%, to $0.76 a share from $0.71 a share....
SNAP-ON INC. $48 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 57.6 million; Market cap: $2.8 billion; WSSF Rating: Average) makes and distributes hand and power tools and computerized diagnostic equipment for automotive mechanics. The company sells its products through a fleet of franchised vans that visit garages. Snap-On continues to make strong progress with its plan to cut costs and expand sales with new products and better customer service. The company is also selling some of its less profitable operations. In the third quarter of 2007, these initiatives cut Snap-On’s expenses by $7 million. That, plus an acquisition in late 2006, helped earnings grow 48.9% to $0.70 a share (total $41.1 million) from $0.47 a share ($27.6 million) a year earlier....
FAIR ISAAC CORP. $38 (New York symbol FIC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 55.4 million; Market cap: $2.1 billion; WSSF Rating: Average) makes software that helps banks and businesses calculate the likelihood that a borrower will pay back a loan. Its FICO credit scoring system is now an industry standard. The company also makes software that help businesses detect fraudulent transactions. In the fiscal year ended September 30, 2007, Fair Isaac’s revenue fell 0.4%, to $822.2 million from $825.4 million. Earnings grew 1.2%, to $104.7 million from $103.5 million in the prior year. However, per-share earnings jumped 14.5%, to $1.82 from $1.59. That’s because the company repurchased $451.1 million of its stock. Fair Isaac spent 8.6% of its revenue on research in fiscal 2007....