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.
Make better stock picks when you read this FREE Special Report, Canadian Growth Stocks: WestJet Stock, RioCan Stock and More.
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BORDERS GROUP INC. $22 (New York symbol BGP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 59.4 million; Market cap: $1.3 billion; WSSF Rating: Average) is the nation’s second-largest bookseller, with 473 superstores and 678 mall-based stores. It also has 55 stores overseas, mostly in the UK. Overall sales grew 3.5% during Christmas. But on a same-store basis, sales fell 1.9% at its U.S. superstores, and 6.3% at the mall stores. The lower sales growth probably cut the company’s fiscal 2007 profit to $0.50 a share from $1.42 a year earlier. The stock trades at 44.0 times that estimate. The lower earnings also reflect the start-up costs of a new loyalty card program. The company has signed up 14 million members, but this does not appear to have raised sales so far. Store renovations have also hurt earnings. But these initiatives should improve customer satisfaction, and encourage more return visits....
BARNES & NOBLE INC. $43 (New York symbol BKS; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 65.6 million; Market cap: $2.8 billion; WSSF Rating: Average) is the largest bookseller in the United States, with 681 full-size stores and 118 mall-based stores. It has no foreign operations. Due to a lack of best-selling titles and growing competition from online booksellers, same-store sales during the busy Christmas shopping season fell 0.1%. Sales should improve over the next few months due to this summer’s release of the final Harry Potter novel. TV-host Oprah Winfrey is once again recommending books on her show, which should also spur sales. Despite the lackluster sales and uncertainty over the possible backdating of options, Barnes & Noble’s stock has moved up on takeover rumors. Insiders control roughly 25% of the shares, which could scare off some bidders. Still, the company’s steady cash flow makes it an appealing target....
WEYERHAEUSER CO. $84 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 236.5 million; Market cap: $19.9 billion; WSSF Rating: Average) is a leading forest products company, with 6.4 million acres of timberland in the United States, and 30 million acres of leased timberland in Canada. It makes a wide variety of wood products for the construction industry, as well as cardboard packaging. In August 2006, Weyerhaeuser agreed to merge its fine-paper operations with Canadian forest products company Domtar Inc. Weyerhaeuser will own 55% of the new company, which will be North America’s largest producer of uncoated paper. Domtar will also pay Weyerhaeuser $1.35 billion. Weyerhaeuser is giving its investors the choice of keeping their Weyerhaeuser shares, or exchanging them for stock in the new company....
ENCANA CORP. $48 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 772.0 million; Market cap: $37.1 billion; WSSF Rating: Average) is a leading Canadian energy company. Natural gas accounts for 80% of its production, while oil supplies the remaining 20%. In the three months ended December 31, 2006, lower gas prices cut EnCana’s profit 42.5%, to $0.84 a share from $1.46 a year earlier. These figures exclude unusual items such as gains on the sale of assets and hedging gains. Cash flow per share fell 24.3%, to $2.18 from $2.88, while revenue fell 37.3%, to $3.7 billion from $5.9 billion. In the past few years, EnCana has sold its overseas assets to focus on unconventional properties in North America, such as early-stage gas fields and the oil sands in Alberta....
CHEVRON CORP. $70 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.2 billion; Market cap: $154.0 billion; WSSF Rating: Above average) is the second-largest integrated oil company in the United States, after ExxonMobil Corp. The company produces oil and natural gas in 35 countries, and refines oil into gasoline and petrochemical products. It also operates 26,500 gas stations. The U.S. accounts for 30% of Chevron’s total production. In the three months ended December 31, 2006, Chevron’s earnings fell 6.5% to $1.74 a share (total $3.8 billion) from $1.86 a share ($4.1 billion) a year earlier. Revenue fell 11.3%, to $47.7 billion from $53.8 billion....
PEPSICO INC. $65 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $104.0 billion; WSSF Rating: Above average) is the world’s second-largest maker of soft drinks after Coca-Cola. Leading brands include Pepsi, Mountain Dew and Slice. Through its Frito-Lay division, PepsiCo is also the world’s leading maker of salty snack foods, such as corn chips (Doritos, Fritos) and potato chips (Lay’s, Ruffles, Stax).
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RBC CANADIAN EQUITY FUND $27.30 (CWA Rating: Conservative) (RBC Funds, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-463-3863; Web site: www.royalbank.com. No load — deal directly with the bank) invests mostly in larger-capitalization stocks, but also looks for opportunities in small and mid-cap stocks. The fund’s 10 largest holdings are TD Bank, Manulife Financial, Bank of Nova Scotia, Royal Bank, EnCana, Barrick Gold, CN Railway, CIBC, Suncor Energy and Bank of Montreal. The $4.7 billion fund holds 31.6% of its holdings in Financial stocks. It also holds 21.5% in Energy stocks....
MCDONALD’S CORP. $44 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.2 billion; Market cap: $52.8 billion; WSSF Rating: Above average) is now thinking about selling or spinning off its struggling Boston Market chain, which operates 620 rotisserie chicken restaurants in 28 states. Meanwhile, McDonald’s earned $0.61 a share in the fourth quarter of 2006, excluding a $0.39 gain on the Chipotle sale and share exchange. That’s 29.8% more than the $0.47 it earned in the year-earlier quarter. Strong demand for new products, including a chicken wrap and a new coffee blend, helped increase December same-store sales in the United States by 6.9%. Same-store sales rose 8.2% in Europe, and 4.8% in Asia....
IDEARC INC. $31 (New York symbol IAR; Income Portfolio, Consumer sector; Shares outstanding: 146.0 million; Market cap: $4.5 billion; WSSF Rating: Average) publishes over 1,200 white pages and yellow pages directories in 35 states. The company is the former directories division of Verizon Communications Inc. In November 2006, Verizon spun off Idearc to its stockholders as a tax-deferred dividend of one Idearc share for every 20 Verizon shares held. Idearc has a 30-year deal to supply Verizon with directories, which cuts its risk. Revenue from directories has weakened in the past few years, as more people use the Internet to locate individuals and businesses. Rising paper and transportation costs have also squeezed profits. But Idearc owns SuperPages.com, a leading online directory....
WINDSTREAM CORP. $15 (New York symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 476.8 million; Market cap: $7.2 billion; WSSF Rating: Average) provides traditional telephone services to over 3 million customers, mainly in rural areas across 16 states. It also offers Internet access and business communication services. The company took its present form in July 2006, when Alltel Corp. merged its telephone operations with Valor Communications Group Inc. Alltel investors received a tax-deferred dividend of 1.0339267 shares of Windstream for each Alltel share held. The spin-off let Alltel focus on its wireless operations....