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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LEON’S FURNITURE LTD. $14.00 (Toronto symbol LNF; TSINetwork Rating: Average) (416-243-7880; www.leons.ca; Shares outstanding: 71.2 million; Market cap: $996.6 million; Dividend yield: 2.9%) has steadily opened new stores, growing from 27 in 2003 to 80 today.
However, the company more than quadrupled in size overnight with its March 2013 purchase of its main rival, The Brick, for $700 million. The Brick has 223 locations across Canada; the chains continue to operate separately.
In the three months ended June 30, 2015, the company’s sales rose 2.1%, to $484.3 million from $474.5 million a year earlier. On a same-store basis, sales gained 1.7%.
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However, the company more than quadrupled in size overnight with its March 2013 purchase of its main rival, The Brick, for $700 million. The Brick has 223 locations across Canada; the chains continue to operate separately.
In the three months ended June 30, 2015, the company’s sales rose 2.1%, to $484.3 million from $474.5 million a year earlier. On a same-store basis, sales gained 1.7%.
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ALIMENTATION COUCHETARD $60.49 (Toronto symbol ATD.B: TSINetwork Rating: Extra Risk) (1-800-361-2612; www.couchetard. com; Shares outstanding: 567.4 million; Market cap: $34.1 billion; Dividend yield: 0.4%) is at new all-time highs after reporting improved profits in the latest quarter.
In the three months ended July 19, 2015, Couche-Tard’s sales fell 2.2%, to $8.98 billion from $9.19 billion a year earlier (all figures except share price and market cap in U.S. dollars).
The fall came from lower gasoline prices, while the higher U.S. dollar cut the contribution from its European operations. That was partly offset by a full quarter of sales from The Pantry, which Couche-Tard bought for $1.7 billion on March 16, 2015.
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In the three months ended July 19, 2015, Couche-Tard’s sales fell 2.2%, to $8.98 billion from $9.19 billion a year earlier (all figures except share price and market cap in U.S. dollars).
The fall came from lower gasoline prices, while the higher U.S. dollar cut the contribution from its European operations. That was partly offset by a full quarter of sales from The Pantry, which Couche-Tard bought for $1.7 billion on March 16, 2015.
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MENTOR GRAPHICS CORP. $25.25 (Nasdaq symbol MENT; TSINetwork Rating: Extra Risk) (503-685-7000; www.mentor.com; Shares outstanding: 116.3 million; Market cap: $3.0 billion; Dividend yield: 0.9%) makes systems that improve the design of electronic products and speed up their development. Its products are used in a range of industries.
As an example, Mentor’s software lets automotive component and chip makers use less wiring, identify potential safety and security issues and minimize electromagnetic effects on sensitive modules. The auto business is one of the company’s biggest growth areas because it’s quickly shifting from mechanical to electronic systems: electronics now make up roughly 40% of a car’s cost.
Whether or not regulators ever approve a true driverless car, research on those vehicles is rapidly accelerating advanced driver assistance systems, such as collision avoidance; infotainment, including GPS; and connectivity apps that record data about a car’s performance, sync with smartphones and notify emergency services.
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As an example, Mentor’s software lets automotive component and chip makers use less wiring, identify potential safety and security issues and minimize electromagnetic effects on sensitive modules. The auto business is one of the company’s biggest growth areas because it’s quickly shifting from mechanical to electronic systems: electronics now make up roughly 40% of a car’s cost.
Whether or not regulators ever approve a true driverless car, research on those vehicles is rapidly accelerating advanced driver assistance systems, such as collision avoidance; infotainment, including GPS; and connectivity apps that record data about a car’s performance, sync with smartphones and notify emergency services.
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Today, we look at a value stock that has the potential for a strong rebound when oil and gas prices recover. Enerflex, an independent company since it was spun off by Toromont Industries (Toronto symbol TIH) in 2011, is a major supplier of equipment to the natural gas industry. A timely U.S. acquisition in 2014 has helped Enerflex generate positive earnings despite a decline in orders, and also enhances the company’s international growth prospects. And the dividend, which yields 3.2%, appears safe.
ENERFLEX LTD. (Toronto symbol EFX; www.enerflex.com) rents and sells equipment and services for natural gas production, including compression and processing plants, refrigeration gear and power generators.
On June 30, 2014, the company closed its $431- million U.S. acquisition of two businesses owned by privately held Axip Energy Services: an international contract compression and processing subsidiary and a division that provides aftermarket services.
In the three months ended June 30, 2015, Enerflex’s revenue fell 8.3%, to $389.7 million from $424.9 million a year earlier. But earnings per share more than doubled, to $0.34 from $0.15. International contributions from the Axip businesses pushed up earnings and almost offset weaker revenue in the U.S. and Canada. However, falling oil and gas prices are now hurting the company’s orders.
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ENERFLEX LTD. (Toronto symbol EFX; www.enerflex.com) rents and sells equipment and services for natural gas production, including compression and processing plants, refrigeration gear and power generators.
On June 30, 2014, the company closed its $431- million U.S. acquisition of two businesses owned by privately held Axip Energy Services: an international contract compression and processing subsidiary and a division that provides aftermarket services.
In the three months ended June 30, 2015, Enerflex’s revenue fell 8.3%, to $389.7 million from $424.9 million a year earlier. But earnings per share more than doubled, to $0.34 from $0.15. International contributions from the Axip businesses pushed up earnings and almost offset weaker revenue in the U.S. and Canada. However, falling oil and gas prices are now hurting the company’s orders.
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Selling software to call centres has made Enghouse Systems a rising growth stock, but we see plenty of risk in its flurry of acquisitions.
Mitel Networks strengthens its niche market with more telecom products in the cloud
In response to a question by a Member of his Inner Circle, Pat McKeough looks at the prospects of one of Canada’s biggest, and oldest, retailers, Hudson’s Bay Company. With five banners in North America, including several leading luxury chains in the U.S., the company has added one of Germany’s largest department store chains. Pat examines the costs and risks of such a big acquisition, but also looks at some of the advantages this growth stock could unlock with its European takeover.
For a recent report on a Canadian growth stock that has achieved rapid growth in the past year, read AirBoss of America gets big profit bounce from rubber products.
Q: Hi, Pat: Could I have your latest recommendations on Hudson’s Bay Co.? Regards.
A: Hudson’s Bay Co. (symbol HBC on Toronto; www.thebay.com) has five main banners:
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For a recent report on a Canadian growth stock that has achieved rapid growth in the past year, read AirBoss of America gets big profit bounce from rubber products.
Q: Hi, Pat: Could I have your latest recommendations on Hudson’s Bay Co.? Regards.
A: Hudson’s Bay Co. (symbol HBC on Toronto; www.thebay.com) has five main banners:
...
Both are growth stocks, but we see Sierra Wireless growing with the Internet of Things while Adobe Systems merits a hold right now.
NEWELL RUBBERMAID INC. $41 (www.newellrubbermaid.com) continues to aggressively cut costs and sell less profitable businesses, such as its Rubbermaid medical-cart operations. Thanks to these moves, the company’s earnings gained 8.5% in the three months ended June 30, 2015, to $0.64 from $0.59 a year earlier....
BUCKEYE PARTNERS L.P. $69 (www.buckeye.com) earned $0.71 a share in the three months ended June 30, 2015, up 34.0% from $0.53 a year earlier. Many oil producers are opting to store their crude instead of selling it at today’s depressed prices, which has spurred demand for Buckeye’s oil-storage terminals....