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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LIZ CLAIBORNE INC. $42 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) designs and markets women’s clothing and accessories under numerous brands, including Liz Claiborne, Mexx and Ellen Tracy. It sells its products through major department stores as well as roughly 660 company-owned specialty stores. It also makes men’s clothing, and licenses its many brands to non-apparel manufacturers. The company’s revenue grew from $3.45 billion in 2001 to $4.85 billion in 2005, partly due to acquisitions. Earnings rose from $1.92 a share (total $201.7 million) in 2001 to $2.94 a share ($317.4 million) in 2005....
LIMITED BRANDS INC. $29 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) operates about 3,600 stores under three main retail chains: Limited Brands (20% of revenue) sells men’s and women’s casual clothing; Victoria’s Secret (50%) sells lingerie; and Bath & Body Works (20%) sells personal care products such as soaps and fragrances. The remaining 10% comes from non-core businesses and other investments. A wide variety of apparel and products helps shield Limited Brands from unpredictable fashion trends and tastes. It large size also gives it clout when dealing with suppliers and mall owners. Limited’s revenue fell from $9.4 billion in 2001 to $8.4 billion in 2002, but rose to $9.7 billion in 2005. Profits grew from $0.87 a share (total $378.0 million) in 2001 to $1.35 a share ($638.0 million) in 2004, but fell to $1.29 a share ($559.7 million) in 2005....
JONES APPAREL GROUP INC. $32 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) designs and markets a wide variety of men’s and women’s clothing and footwear. Major brands include Jones New York, Gloria Vanderbilt and Nine West. Sales through department stores and specialty stores account for about two-thirds of Jones’s total revenue. The remaining third comes from its own retail operations of roughly 1,070 stores. Jones’s revenues rose steadily, from $4.1 billion in 2001 to $5.1 billion in 2005. Profits grew from $2.31 a share (total $236.0 million) in 2001 to $2.84 a share ($385.2 million) in 2002....
THE STANLEY WORKS $50 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) makes a wide variety of hand and power tools for professionals and consumers. In the past four years, Stanley has shifted its focus away from cyclical consumer products to industrial products and building security systems, which have steadier revenue streams. Consumer products now account for about 30% of its revenue and profit, down from 40% four years earlier. Focusing on industrial products also cuts Stanley’s reliance on big retail chains such as Home Depot....
SNAP-ON INC. $44 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) makes and distributes hand tools to automotive mechanics, mainly through a fleet of franchised vans that visit garages. This business supplies about 45% of its revenue. The company also sells power tools and storage chests (45% of revenue) and provides financing to dealers (10% of revenue). Snap-On’s revenue grew at a compound annual rate of 3.4%, from $2.1 billion in 2001 to $2.4 billion in 2005. The slow economy cut profits from $1.84 a share (total $106.7 million) in 2001 to $1.35 a share ($78.7 million) in 2003. A successful restructuring plan raised earnings to $1.40 a share ($81.7 million) in 2004, and to $1.65 a share ($95.7 million) in 2005....
GENUINE PARTS CO. $43 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) distributes over 320,000 automotive replacement parts through 1,200 company-owned stores and 4,800 independent dealers. It also distributes industrial parts, electronic equipment and office supplies. The automotive business supplies roughly half of its revenue and profit. Demand for replacement parts tends to be less cyclical than car sales, since it’s cheaper to repair an older vehicle than buy a new one. That helped the company’s revenue grow at a compound annual rate of 4.6%, from $8.2 billion in 2001 to $9.8 billion in 2005. Earnings before unusual items rose from $2.08 a share in 2001 (total $361.5 million) to $2.50 a share ($437.4 million) in 2005, or 4.7% compounded annually....
AGILENT TECHNOLOGIES INC. $32 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is the world’s leading maker of testing and measurement equipment. Companies in telecommunications, electronics and medical sciences use Agilent’s equipment to improve the quality of their own products. Agilent gets about two-thirds of its revenue from customers outside of the United States. Revenue fell from $8.4 billion in 2001 (fiscal years end October 31) to $6.0 billion in 2002 after the company sold a division. The end of the tech boom also cut demand for its products. Revenue rose from $6.06 billion in 2003 to $7.2 billion in 2004, but slipped to $6.9 billion in 2005....
CHIPOTLE MEXICAN GRILL INC. $50 (New York symbol CMG) is an 50.8%-owned McDonald’s unit that operates 500 Mexican food restaurants in 23 states. This past January, Chipotle sold “A” shares (one vote per share) to the public at $22 each. McDonald’s offer lets its investors exchange all or some of their shares for Chipotle Class B common shares (10 votes per share; New York symbol CMG.B). The company will calculate the final exchange ratio before the offer expires on October 5, 2006. McDonald’s designed the offer so that its investors get to acquire Chipotle at a 10% discount. It feels the swap is tax-deferred, but the IRS has yet to issue a final ruling....
MCDONALD’S CORP. $40 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) is giving its stockholders an opportunity to exchange their McDonald’s stock for a holding in its Mexican food subsidiary.
MTS SYSTEMS CORP. $34 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) makes equipment that manufacturers use to test the mechanical behavior of materials, machines and structures. In its third fiscal quarter ended July 1, 2006, earnings from continuing operations fell 6.3%, to $0.45 a share (total $8.5 million) from $0.48 a share ($9.9 million) a year earlier. Sales grew 1.3%, to $95.9 million from $94.7 million. Although MTS sold more equipment, it received fewer orders for custom-made equipment, which generate higher profits for it than its regular products....