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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TUPPERWARE BRANDS CORP. $32 (New York symbol TUP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 61.8 million; Market cap: $2.0 billion; WSSF Rating: Above average) makes plastic containers for food and other items. It also makes beauty and personal care products. The company sells its products through independent dealers instead of traditional stores. In the second quarter of 2007, Tupperware’s earnings grew 36.6%, to $0.56 a share from $0.41 a year earlier. Sales grew 12.4%, to $492.9 million from $438.6 million, mainly due to strong growth in North America and Asia. If you exclude the positive impact of foreign exchange rates, per-share earnings rose 18.4%, and sales grew 8%. Tupperware is now targeting international markets for new growth. Expanding prosperity in Asia, Latin America and Eastern Europe is making Tupperware’s products more affordable....
BAXTER INTERNATIONAL INC. $56 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 644.7 million; Market cap: $36.1 billion; WSSF Rating: Average) makes medical equipment through three main divisions. Medication Delivery makes intravenous equipment and systems (roughly 40% of sales); BioScience makes various vaccines and drugs (40%); and Renal makes dialysis equipment (20%). Baxter gets 55% of its revenue from overseas customers. The company is still having problems with its Colleague medication delivery pumps. Earlier this year, it had to recall 4,500 of the 280,000 pumps in service to fix a defect that could inject too much medication into a patient....
INVACARE CORP. $24 (New York symbol IVC; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 30.9 million; Market cap: $741.6 million; WSSF Rating: Average) makes wheelchairs, motorized scooters and other mobility and home care products. It sells them through over 15,000 home health care and medical equipment dealers in the United States, Canada, Europe, Australia and New Zealand, as well as directly to government agencies. Foreign markets account for about a third of Invacare’s sales. In the second quarter of 2007, sales rose 5.8% to $393.3 million from $371.8 million a year earlier. Most of the increase came from favorable foreign exchange rates and an acquisition. Earnings before restructuring charges fell 41.7%, to $0.14 a share (total $4.3 million) from $0.24 a share ($7.6 million). Invacare spends roughly 2% of its sales on research....
C.R. BARD INC. $88 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 103.4 million; Market cap: $9.1 billion; WSSF Rating: Average) makes medical devices in four main areas: Vascular products such as stents and catheters (24% of 2006 sales); Urology products such as drainage and incontinence devices (30%); Oncology products that detect and treat various types of cancer (24%); and Surgical Tools (18%). Other devices provided the remaining 4% of sales. The company’s wide array of products cuts its reliance on a single device. Most of its products are single-use devices that hospitals and clinics must constantly replenish. That gives Bard predictable revenue streams. Overseas markets account for 30% of Bard’s sales, which cuts its geographic risk....
3M COMPANY $93 (New York symbol MMM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 715.8 million; Market cap: $66.7 billion; WSSF Rating: Above average) is a diversified manufacturer formerly known as Minnesota Mining & Manufacturing. 3M owns a range of well-known brand names. Post-it notes, Scotch tape, Scotch-Brite household cleaning products, Scotchguard protection and Thinsulate insulation are just a tiny sample of its wide product line. The company sells more than 50,000 products in over 200 countries. Foreign sales are about 63% of total revenues. 3M’s six business segments comprise industrial and transportation (approximately 30% of sales), display and graphics (16%), health care (16%), consumer and office (14%), safety, security & protection (13%) and electronics and communications (11%)....
WELLS FARGO & CO. $36 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 3.3 billion; Market cap: $118.8 billion; WSSF Rating: Average) continues to expand its retail banking business. As well, the company shut down its subprime wholesale mortgage business, which processes loans for third-party brokers. The stock trades at 13.1 times the $2.74 a share it should earn in 2007. The $1.24 dividend yields 3.4%. Wells Fargo is a buy.
WACHOVIA CORP. $48 (New York symbol WB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.9 billion; Market cap: $91.2 billion; WSSF Rating: Average) is cutting its exposure to housing with its recent deal to buy brokerage firm A.G. Edwards Inc. When the purchase closes later this year, it will make Wachovia the second-largest retail brokerage firm in the United States, after Merrill Lynch. Wachovia’s strong history of successfully integrating new operations cuts the risk of using acquisitions to grow. Wachovia should earn $4.93 a share in 2007, and the stock trades at just 9.7 times that estimate. The $2.56 dividend yields 5.3%. Wachovia is a buy.
BANK OF AMERICA CORP. $51 (New York symbol BAC; Income Portfolio, Finance sector; Shares outstanding: 4.4 billion; Market cap: $224.4 billion; WSSF Rating: Above average) has little exposure to subprime mortgages, but it aims to profit from the recent turmoil. It has agreed to buy $2 billion worth of convertible preferred shares from mortgage specialist Countrywide Financial Corp. (New York symbol CFC). If converted, Bank of America would own about 16% of Countrywide. This investment is roughly a third of the $5.8 billion or $1.29 a share Bank of America earned in its latest quarter. While it adds to its risk, it could have a big payoff. Rules that ban a single bank from controlling more than 10% of U.S. deposits have hurt Bank of America’s ability to expand. However, the Countrywide investment should improve its 7% share of the mortgage market. The stock trades at 10.4 times the $4.90 a share it should earn in 2007. It raised its dividend 14.3% to $2.56 a share (5.0% yield)....
APACHE CORP. $75 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 332.0 million; Market cap; $24.9 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. The company reserves are roughly half oil and half natural gas. Apache spends heavily on exploration and acquisitions to replenish its reserves. For example, it recently paid $1 billion for 28 oil and gas fields in Texas. This purchase increased Apache’s oil reserves by 8%, and its gas reserves by 5%. Thanks to this acquisition and increased production at its other properties, Apache’s revenue in the three months ended June 30, 2007 rose 19.1%, to $2.5 billion from $2.1 billion....
ENCANA CORP. $59 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 753.3 million; Market cap: $44.4 billion; WSSF Rating: Average) is one of North America’s leading producers of natural gas. The company prefers to focus on early-stage properties in Alberta and the U.S. Rockies. These assets cost more to develop, at least initially, but should last much longer than conventional gas fields. Natural gas accounts for 80% of its production. EnCana is also active in Alberta’s oil sands region. But extracting the heavy, tar-like oil sands is much more costly than operating regular oil wells. That’s why EnCana recently folded its oil sands assets into two joint ventures with ConocoPhillips— one to operate the oil sands, and one to refine heavy oil. The two ventures operate independently of each other. In the second quarter of 2007, earnings before hedging gains and other one-time items jumped 83.7%, to $1.80 a share from $0.98 a year earlier, while cash flow per share rose 54.9%, to $3.33 from $2.15. Revenue rose 43.6%, to $5.6 billion from $3.9 billion, due to the expansion of its oil sands business....