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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ALLIANT ENERGY CORP. $29 (New York symbol LNT; WSSF Rating: Average) provides electricity and gas to over 1.4 million customers in four Midwest states. The company is currently simplifying its operations as part of a broad restructuring plan. In 2005, Alliant sold its 41% interest in a Wisconsin nuclear power plant for $78.5 million. Alliant also agreed to sell its 70% stake in an Iowa nuclear power plant and related assets for $387 million. The company is also selling its money-losing overseas power plants. It will use the cash to pay down its $2.1 billion in long-term debt, (or 0.8 times equity)....
AMEREN CORP. $52 (New York symbol AEE; WSSF Rating: Average) has 2.3 million electric customers and 900,000 natural gas customers in Missouri and Illinois. The company aims to cut its operating costs over the next three years by $65 million, mainly by cutting finance and administrative staff. To put this target in context, Ameren earned $280 million in the three months ended September 30, 2005, up 20.7% from $232 million a year earlier. However, per-share profit grew just 14.2%, to $1.37 from $1.20, due to more shares outstanding. Revenue jumped 46.2%, to $1.9 billion from $1.3 billion, mainly due to last year’s acquisition of Illinois Power Company. Coal supplies about 85% of Ameren’s fuel needs, but rising prices and environmental concerns have prompted the company to consider building a second unit at its 21-year old nuclear power facility west of St. Louis. The project would cost at least $2 billion, and take at least 10 years to complete. Although companies often underestimate the cost of complex projects, Ameren did design the current plant to make it easier to add more units....
GOLDEN WEST FINANCIAL CORP. $67 (New York symbol GDW; WSSF Rating: Average) operates over 500 retail branches in 38 states under the “World Savings & Loan” banner. Residential mortgages represent 90% of its loan portfolio. Golden West specializes in adjustable rate mortgages (ARMs), whose interest rates move up and down with the Federal Reserve’s benchmark rate. Many first-time homebuyers prefer ARMs, since the initial interest rate is usually less than a fixed-rate mortgage. Golden West likes them since the interest it receives on its loans varies with the interest it has to pay out to depositors. Although interest rates are still moving up, Golden West’s loan volumes continue to rise, although at a slower pace. That helped the company earn $1.22 a share (total $382.2 million) in the three months ended September 30, 2005, up 16.2% from $1.05 a share ($324.8 million) a year earlier....
WASHINGTON FEDERAL, INC. $24 (Nasdaq symbol WFSL; WSSF Rating: Average) operates 122 savings and loans branches in seven western states. Single-family residential mortgages account for 70% of its loan portfolio. The company is doing a good job managing its loan portfolio. When interest rates were low, it decided to hold most of its assets in cash instead of chasing less profitable business. However, as interest rates moved up, it expanded its lending activities. Thanks to this conservative approach, Washington Federal earned $0.39 a share (total $34.4 million) in its fourth fiscal quarter ended September 30, 2005, up 8.3% from $0.36 a share ($31.5 million) a year earlier. The most recent quarterly earnings figure included $1.2 million in net non-recurring items....
WASHINGTON MUTUAL INC. $44 (New York symbol WM; WSSF Rating: Average) is the nation’s largest thrift company, with over 2,500 branches and offices. Residential mortgages account for over 60% of its total loan portfolio. Other operations include corporate lending and insurance. Rising interest rates has slowed demand for new mortgages, and refinancing of existing ones. That forced Washington Mutual to cut costs, and reduce its exposure to the mortgage industry. Consequently, the company acquired credit card issuer Providian Financial Corp. for $6.1 billion in cash and stock. This is a big commitment for Washington Mutual, which earned $0.92 a share (total $821 million) in the third quarter of 2005, up 21.1% from $0.76 a share ($674 million) a year earlier. (These figures do not include Providian.) It will take several months for Washington Mutual to absorb its new operations. But they should eventually add around $0.10 a share to its annual earnings....
H.J. HEINZ COMPANY $35 (New York symbol HNZ; WSSF Rating: Above average) rose more than 25-fold from the early 1980s through 1998. In the next couple of years, it dropped by nearly half. It has spent much of the current decade between $30 and $40. Its next big move is likely to be upward. Heinz is one the world’s biggest food companies, with sales in over 200 countries. It’s best known for its Heinz ketchup, which has 60% of the American retail market and 80% of the restaurant market. Other products include soups, beans, pasta sauces (Classico), frozen potatoes (Ore-Ida) and baby food (Plasmon). Overseas markets account for 55% of Heinz’s sales, and 45% of its profit. Heinz’s sales fell from $9.4 billion in 2000 (fiscal years end April 30) to $8.2 billion in 2002, after it spun off several slow-growth brands such as North American tuna and pet food to Del Monte Foods Inc. Sales improved to $8.9 billion in 2004....