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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WINDSTREAM CORP. $15 (New York symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 477.2 million; Market cap: $7.2 billion; WSSF Rating: Average) provides local telephone and other communication services to over 3 million customers in 16 states. Most of its customers are in rural areas. Windstream took its present form in July 2006 when Alltel Corp. merged its traditional telephone operations with Valor Communications Group Inc. In the three months ended March 31, 2007, earnings fell 11.4%, to $99.9 million from $112.8 million a year earlier. Per-share income fell 25.0%, to $0.21 from $0.28, due to an 18% jump in the number of shares outstanding. Revenue grew 11.5%, to $783.7 million from $703.0 million. If you assume the merger occurred at the start of 2005 and disregard restructuring costs, Windstream’s revenue would have grown 1.9%....
KRAFT FOODS INC. $36 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $57.6 billion; WSSF Rating: Above average) is the world’s second-largest food company, after Nestle. It owns some of the industry’s top brands, including Kraft (cheese), Maxwell House (coffee), Nabisco (biscuits and cookies), Post (cereals) and Oscar Meyer (meats). North America accounts for two-third of its sales. The company was a 100%-owned subsidiary of Altria Group Inc. up to June 2001. That’s when Altria sold about 12% of Kraft’s shares to the public at $31.00 each. Altria handed out its remaining Kraft shares to its own investors in March 2007. Kraft’s sales grew steadily, from $29.7 billion in 2002 to $34.4 billion in 2006. However, profits before unusual items fell from $2.02 a share (total $3.5 billion) in 2002 to $1.87 a share ($3.2 billion) in 2004, mostly due to rising costs. Total earnings were flat at $3.2 billion in 2005 and 2006. But per-share earnings rose to $1.88 in 2005 and to $1.94 in 2006, due to fewer shares outstanding....
LIMITED BRANDS INC. $26 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 400.0 million; Market cap: $10.4 billion; WSSF Rating: Average) operates around 3,800 stores in three main groups: apparel (The Limited, Express and Henri Bendel); lingerie (Victoria’s Secret and La Senza); and personal care products (Bath & Body Works and White Barn Candle Co.). In the past few years, most of the company’s growth has come from its specialty operations. In fact, these businesses now account for 80% of the company’s sales, while traditional apparel provides the other 20%. The company recently reorganized its apparel operations to focus on younger shoppers. This strategy seems to be working. In its first fiscal quarter ended May 5, 2007, same-store sales at the apparel chains rose 5% compared with just a 1% gain in the year-earlier quarter. Same-store sales rose 2% at Victoria’s Secret (compared with an 8% gain a year earlier), and 5% at Bath & Body Works (compared with a 4% gain a year earlier)....
JONES APPAREL GROUP INC. $30 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 108.9 million; Market cap: $3.3 billion; WSSF Rating: Average) designs clothing, accessories and footwear under several brands, including Jones New York, Gloria Vanderbilt and Nine West. Jones is also suffering from the Federated merger and the growth of private label clothing in most big department stores. In the first quarter of 2007, profits before unusual items fell 24.2%, to $0.50 a share from $0.66 a year earlier. Sales crept up to $1.25 billion from $1.22 billion, due to an extra week in the most recent quarter....
LIZ CLAIBORNE INC. $34 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 104.5 million; Market cap: $3.6 billion; WSSF Rating: Average) designs and markets a wide variety of clothing and accessories for men and women. The company sells most of its products through department stores. However, the recent merger of Federated Department Stores and May Department Stores has hurt its sales. Many retailers are also selling more private label apparel, which has hurt demand for Liz Claiborne’s national brands. Weakness in its wholesale business forced Liz Claiborne to mark down certain products to cut inventories. Consequently, profits in the first quarter of 2007 fell 63.3%, to $0.22 a share from $0.60 a year earlier. These figures exclude unusual items. Sales fell 1.7%, to $1.15 billion from $1.17 billion. The lower profits spooked investors, and the stock fell 20%. It now trades at 17.4 times the $1.95 a share that it should earn in 2007. The $0.225 dividend seems safe, and yields 0.7%....
MOODY’S CORP. $72 (New York symbol MCO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 273.8 million; Market cap: $19.7 billion; WSSF Rating: Average) provides credit ratings on securities issued by over 200,000 corporations and government agencies in 100 countries. Moody’s revenue doubled, from $1.0 billion in 2002 to $2.0 billion in 2006. Revenue should reach $2.3 billion in 2007....
THE DUN & BRADSTREET CORP. $97 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 59.4 million; Market cap: $5.8 billion; WSSF Rating: Average) provides credit reports and other information on 100 million companies in over 200 countries. Its clients use its products to make lending and buying decisions. Revenues increased slowly, from $1.3 billion in 2002 to $1.5 billion in 2006. But thanks to a successful restructuring plan, profits before unusual items rose at a compound annual rate of 16.6%, from $2.15 a share (total $164.9 million) in 2002 to $3.97 a share ($258.4 million). The company aims to save a further $65 million in 2007. Another factor in the company’s strong growth is the spread of the Internet. Dun & Bradstreet is making more of its information available to clients over the Internet, which improves the timeliness of data and cuts its distribution costs....
TRIMBLE NAVIGATION $29.68 (Nasdaq symbol TRMB; SI Rating: Speculative) (408-481-6914; www.trimble.com; Shares outstanding: 119.5 million; Market cap: $3.5 billion) (adjusted for a 2-for-1 split in February, 2007) makes GPS devices and technology for four main markets: 1) Engineering and construction is the biggest contributor to revenue for Trimble, at 68% of revenues. This segment includes a joint venture with Caterpillar Inc. 2) Agriculture GPS products (15% of sales) let farmers cut costs and increase yields by, say, precisely plowing, seeding or fertilizing fields, even at night....
MTS SYSTEMS CORP. $39 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 17.7 million; Market cap: $690.3 million; WSSF Rating: Average) makes equipment and software that carmakers and other manufacturers use to test the mechanical behavior of materials, machines and structures. That helps them cut costs, and comply with new emission and safety regulations. In its second fiscal quarter ended March 31, 2007, MTS earned $0.56 a share, down 3.5% from $0.50 a year earlier. Revenue fell 1.1%, to $101.8 million from $102.9 million. Favorable foreign currency rates added $3.4 million to its latest quarterly sales. MTS is doing a good job expanding its overseas operations, which now account for two-thirds of its revenue. That cuts its exposure to the struggling North American automotive industry....
BRIGGS & STRATTON CORP. $29 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 49.4 million; Market cap: $1.4 billion; WSSF Rating: Above average) is the world’s largest maker of engines for lawnmowers. This business accounts for about two-thirds of its sales and profits. The remainder comes from other home and garden products, including pressure washers and snow blowers. Demand for labor-saving devices like these should grow as the population ages. Severe storms like those that hit the Midwest last winter should also spur sales of Briggs’ power generators. In its third fiscal quarter ended March 31, 2007, profits fell 87.1%, to $0.15 a share (total $7.8 million) from $1.16 a share ($60.0 million) a year earlier. However, the latest quarterly earnings included a $0.42 a share writedown. Sales fell 10.4%, to $717.1 million from $800.2 million. Large retailers such as Home Depot have cut pre-orders of generators since they built up their inventories last year. Unusually cold spring weather has also forced retailers to delay orders for seasonal goods like lawnmowers....