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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AVAYA INC. $10 (New York symbol AV; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is a leading maker of telecommunication equipment for large businesses and government agencies. This gear helps its clients efficiently manage their voice, data and Internet traffic. The company gets roughly half of its revenue selling equipment, and the other half from maintenance and other services. That cuts the company’s exposure to the increasingly competitive telecom industry. At the 2006 FIFA World Cup soccer tournament in Germany, Avaya installed the largest voice and data network ever built. The U.S. Army recently selected Avaya, as part of a group, to overhaul communications at its bases around the world....
NCR CORP. $34 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is a leading maker of automated teller machines (ATMs), cash registers and bar code scanners. It also provides customers with maintenance services and supplies such as paper and ink. NCR’s fastest growing business is its Teradata division, which helps businesses capture and analyze data such as customer buying habits. Identifying trends helps Teradata clients improve customer satisfaction, and expand sales. Teradata accounts for 25% of NCR’s revenue, but 60% of its profit. Thanks to an 11% rise in revenue at Teradata, NCR’s overall revenue in the three months ended June 30, 2006 rose 4.1%, to $1.53 billion from $1.47 billion a year earlier. Net income fell 37.3%, to $0.42 a share (total $78 million) from $0.67 a share ($127 million)....
XEROX CORP. $15 (New York symbol XRX; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is one of the world’s leading makers of printers, copiers and document publishing equipment. Overseas markets account for about half of its sales and profits. In the three months ended June 30, 2006, Xerox’s earnings fell 35.0%, to $0.26 a share (total $260 million) from $0.40 a share ($423 million) a year earlier. However, the year-earlier quarter included a non-recurring net gain of $213 million. Sales rose 1.5%, to $3.98 billion from $3.92 billion. The company spends around 5% of its annual revenue of around $16.00 a share on research. It has to write off these costs immediately, which hurts its earnings. But this spending has helped Xerox become the largest maker of black-and-white publishing systems in the United States and Europe....
AT&T INC. $30 (New York symbol T; Income Portfolio, Utilities sector; WSSF Rating: Average) is the largest telecommunications company in the United States, with 47.9 million traditional lines in service in 13 states. It’s also the nation’s largest provider of wireless services, with over 57 million customers. The company took its present form and name in November 2005 when SBC Communications Inc. acquired the old AT&T Corp. for $16.3 billion in cash and stock. AT&T stockholders wound up owning 16% of the combined company. The new company gets roughly 50% of its revenue from providing telephone and data services to businesses. Its wireless and consumer businesses each supply 25% of its revenue....
ACE CASH EXPRESS INC. $29 (Nasdaq symbol AACE; Aggressive Growth Portfolio, Finance sector; WSSF Rating: Speculative) has accepted an all-cash offer of $30 a share. We first recommended ACE in our January 2000 issue at $18, so this offer represents a 66.7% gain. ACE stockholders should tender their shares to get the full $30.
GOLDEN WEST FINANCIAL CORP. $76 (New York symbol GDW; Conservative Growth Portfolio, Finance sector; WSSF Rating: Average) plans to merge with Wachovia Corp. (New York symbol WB) in a cash-and-stock deal currently worth $77.24 per Golden West share. We first recommended Golden West in our December 1999 issue at $16.83 (adjusted for splits), which works out to a 359% gain....
T. ROWE PRICE GROUP, INC. $37 (Nasdaq symbol TROW; Aggressive Growth Portfolio, Finance sector; WSSF Rating: Average) sells and manages over 80 no-load mutual funds. The company also provides wealth management, brokerage and other financial services. It currently oversees assets worth roughly $293 billion. The company prefers to sell its funds directly to investors with no commission fees. That helps keep its management expense ratios down, which gives it an advantage over funds sold through brokers. T. Rowe Price earned $0.42 a share (total $116.7 million) in the three months ended March 31, 2006 (all per-share amounts adjusted for a 2-for-1 split in June 2006)....
STATE STREET CORP. $59 (New York symbol STT; Aggressive Growth Portfolio, Finance sector; WSSF Rating: Average) provides custodial, research, accounting and other services to large institutional investors, such as pension plans and mutual funds. The company gets about 80% of its revenue from management and other fees, while the remaining 20% comes from lending. Equity markets have slumped in the past few months and higher interest rates have cut bond prices. However, State Street’s assets under custody in the second quarter of 2006 rose 13.5%, to $10.9 trillion from $9.6 trillion a year earlier, due to new clients and more business from existing clients. Total assets under management rose 7.1%, to $1.5 trillion from $1.4 trillion a year earlier....
AMERIPRISE FINANCIAL INC. $44 (New York symbol AMP; Conservative Growth Portfolio, Finance sector; WSSF Rating: Average) provides financial planning, brokerage and insurance services to over 2.7 million clients through a network of roughly 12,370 advisors. It currently owns, administers or manages assets worth $428 billion. The company was a wholly owned subsidiary of American Express Co. (see page 75) prior to September 2005. That’s when American Express handed out all of its Ameriprise shares to its own stockholders as a special tax-deferred dividend. In the three months ended June 30, 2006, the company earned $0.57 a share from continuing operations, down 6.6% from $0.61 a year earlier. If you disregard costs related to the spin-off and other unusual items, per-share income grew 21.5%, to $0.79 from $0.65. Revenue rose 13.9%, to $2.05 billion from $1.8 billion....
HARTE-HANKS, INC. $26 (New York symbol HHS; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) helps companies identify and target potential customers, and works with them to develop an advertising strategy. Direct marketing provides roughly 60% of its revenue, and just over half its profit. The remaining 40% of its revenue comes from its shopper division. Shoppers are free, advertising-supported publications that the company mails to households in a particular geographic area. Harte-Hanks is the largest publisher of shoppers in the United States, with nearly 1,100 weekly editions in California and Florida that reach over 12.8 million readers. Harte-Hanks’ revenue rose from $917.9 million in 2001 to $1.14 billion in 2005, or 5.6% compounded annually. Profits grew at a compound annual rate of 13.1%, from $0.82 a share (total $79.7 million) in 2001 to $1.34 a share ($114.5 million) in 2005....