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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NEWELL RUBBERMAID INC. $38 (New York symbol NWL; Aggressive Growth and Income Portfolios, Consumer sector; Shares outstanding: 267.1 million; Market cap: $10.1 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.0%; TSINetwork Rating: Average; www.newellrubbermaid.com) makes plastic storage bins, tools, pens and many other household goods. Its main brands include Sharpie markers, Parker and Paper Mate pens, Calphalon cookware, Irwin tools and Graco car seats and strollers. Newell is up 26.7% since we named it our Stock of the Year for 2014 at $30. That’s mainly because of its successful multi-year cost-cutting plan, which included closing plants and merging distribution centres. Since it began the plan in October 2011, these moves have reduced its annual expenses by $360 million. The company is also selling less-important businesses and using the proceeds to buy smaller firms with more-profitable products, such as baby strollers and reusable water bottles....
UNITED TECHNOLOGIES CORP. $94 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 836.4 million; Market cap: $78.6 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.utc.com) jumped $5 on news that rival Honeywell International (New York symbol HON) seeks to merge the two firms. Anti-trust regulators are unlikely to approve such a merger: the combined company would dominate several markets, including aerospace products (such as jet engines and landing gear) and building equipment (elevators, thermostats). Meanwhile, United Technologies earned $5.6 billion in 2015. That’s down 5.5% from $5.9 billion in 2014. The company used the $9.1 billion it received from last year’s sale of its Sikorsky helicopter operations to buy back $10.0 billion of its shares. As a result, its per-share earnings fell just 2.5%, to $6.30 from $6.46. If you factor out exchange rates, per-share earnings gained 0.5% to $6.49....
TUPPERWARE BRANDS CORP. $49 (New York symbol TUP; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 49.7 million; Market cap: $2.4 billion; Price-to-sales ratio: 1.7; Dividend yield: 5.6%; TSINetwork Rating: Above Average; www.tupperwarebrands.com) makes plastic food and beverage containers, as well as cosmetics and fragrances. It sells these products through 3.1 million independent dealers, which keeps its distribution costs down. We made Tupperware our Stock of the Year in 2011 when it was trading at $47. The stock got as high as $97 in 2013, but has moved down since. That’s mainly because the company gets over 80% of its revenue from outside of North America, and the high U.S. dollar has hurt the contribution of its overseas operations. Tupperware’s sales were flat at $2.6 billion in 2011 and 2012, but rose to $2.7 billion in 2013. Due to unfavourable exchange rates, sales fell to $2.6 billion in 2014, and to $2.3 billion in 2015. Without exchange rates, sales rose 3.5% in 2015....
MCDONALD’S CORP. $117 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 918.2 million; Market cap: $107.4 billion; Price-to-sales ratio: 4.2; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.mcdonalds.com) plans to sell 4,000 of its company-owned outlets to franchisees. As a result, franchisees will operate 93% of the chain’s 35,000 restaurants by 2018, compared to 81% today. This will lower the company’s operating expenses and free it from maintaining and upgrading these outlets. In addition, McDonald’s plans to cut $500 million a year from its administrative costs by the end of 2017. To put that goal in perspective, the company earned $4.5 billion in 2015, down 4.8% from $4.8 billion in 2014. Earnings per share fell just 0.4%, to $4.80 from $4.82, on fewer shares outstanding. If you disregard unfavourable currency exchange rates, earnings gained 5%, while per share earnings rose 10%....
YUM! BRANDS INC. $71 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 408.7 million; Market cap: $29.0 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.yum.com) plans to spin off its operations in China as a separate, publicly traded firm. The company will hand out shares in Yum China to its own investors, who won’t be liable for capital gains taxes until they sell them. The company aims to complete the spinoff by the end of 2016. Currently, as a unit, Yum China operates 7,176 fast-food outlets (as of December 26, 2015) under the KFC, Pizza Hut and Taco Bell banners. In 2015, this division supplied 53% of Yum’s overall sales....
NORDSTROM INC. $52 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 173.5 million; Market cap: $9.0 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.8%; TSINetwork Rating: Average; www.nordstrom.com) owns and operates 323 stores in the U.S. and Canada that mainly sell upscale clothing and footwear. Due to investments in its online business and the opening of new stores in Canada, Nordstrom’s earnings in its 2016 fiscal year, which ended January 30, 2016, fell 15.3%, to $3.15 a share from $3.72 in 2015. Sales rose 6.9%, to $14.4 billion from $13.5 billion, while same-store sales gained 2.7%. Online sales jumped 20.2%, and accounted for 19.6% of its total sales. Nordstrom is still a buy.
RESTAURANT BRANDS INTERNATIONAL INC. $33(New York symbol QSR; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 467.6 million; Market cap: $15.4 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.7%; TSINetwork Rating: Average; www.rbi.com) operates 4,413 Tim Hortons coffee and donut locations and 15,003 Burger King outlets in 100 countries. If you set aside restructuring costs and other unusual items, Restaurant Brands earned $561.1 million, or $1.18 a share, in 2015. That’s up 20.0% from $467.6 million, or $0.98, in 2014. Sales fell 3.5%, to $4.05 billion from $4.20 billion. If you exclude the impact of the U.S. dollar on Restaurant Brands’overseas operations, sales gained 9.2%....
ARCHER DANIELS MIDLAND CO. $34 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 593.9 million; Market cap: $20.2 billion; Priceto- sales ratio: 0.3; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.adm.com) processes corn, wheat, soybeans, canola, flax seed, peanuts and other crops into a variety of food ingredients, such as flour, oils and sweeteners. The company has agreed to pay an undisclosed sum for a controlling stake in Iowa-based Harvest Innovations. This private firm makes soy proteins and oils for gluten-free pastas and other foods. Harvest’s expertise will help Archer Daniels profit as increasingly health-conscious consumers eat products made with organic and non-genetically modified ingredients. Archer Daniels Midland is a buy.
GENUINE PARTS CO. $91 (New York symbol GPC; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 150.8 million; Market cap: $13.7 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.9%; TSINetwork Rating: Average; www.genpt.com) gets 52% of its sales and 57% of its earnings by selling replacement auto parts: Genuine operates 1,100 outlets under the NAPA banner, and its distribution business serves 4,900 independent stores in North America, Australia and New Zealand. The company also sells industrial parts (30% of sales, 27% of earnings), office products (13%, 11%) and electrical equipment (5%, 5%). In 2015, Genuine’s overall sales fell 0.4%, to $15.28 billion from $15.34 billion in 2014. Leaving out currency exchange rates, sales rose 2.5%, due to acquisitions (up 1%) and higher growth at its existing businesses (up 1.5%)....
SNAP-ON INC. $146(New York symbol SNA; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 58.1 million; Market cap: $8.5 billion; Price-to-sales ratio: 2.3; Dividend yield: 1.7%; TSINetwork Rating: Average; www.snapon.com) makes tools for auto mechanics and sells them through a fleet of franchised vans that visit garages. It also makes specialized tools for industrial customers. In 2015, Snap-On’s revenue gained 2.3%, to $3.4 billion from $3.3 billion in 2014. Excluding exchange rates and acquisitions, sales gained 7.1%. Earnings per share rose 13.4%, to $8.10 from $7.14. The company continues to benefit as carmakers add new features to their vehicles such as automatic parking and braking systems. That has forced repair shops to invest in new tools and upgrade their diagnostic equipment. Most of these clients borrow the funds they need to buy new tools and equipment, which has increased earnings at Snap-On’s financing division....