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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Growth Stocks Library Archives
These two automotive-equipment suppliers have shot up in the past year, partly because strong car sales should spur demand for their products for years to come. Both stocks seem expensive in relation to their earnings right now, but we still see Genuine Parts as a buy, as it has a wider variety of businesses than Snap-On (see next article). 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: 2.7%; TSINetwork Rating: Average; www.genpt.com) gets about half of its sales and earnings by selling replacement auto parts. The company operates 1,100 outlets under the NAPA banner, and its distribution business serves 4,900 independent stores in North America, Australia and New Zealand....
SNAP-ON INC. $171 (New York symbol SNA; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 58.1 million; Market cap: $9.9 billion; Price-to-sales ratio: 2.7; Dividend yield: 1.4%; 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. Snap-On continues to expand beyond the U.S., which supplies 65% of its revenue. In August 2015, it paid $13.1 million for Ecotechnic, an Italian maker of equipment for maintaining vehicle air conditioning systems. The purchase should add roughly $13 million to Snap-On’s annual revenue. The company is also seeing strong demand for its tools and other products. In the three months ended October 3, 2015, its revenue gained 1.9%, to $821.5 million from $806.3 million a year earlier. Excluding exchange rates and acquisitions, sales gained 7.3%. Earnings per share rose 12.5%, to $1.98 from $1.76....
KEYSIGHT TECHNOLOGIES INC. $31 (New York symbol KEYS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 170.0 million; Market cap: $5.3 billion; Price-to-sales ratio: 1.8; No dividends paid; TSINetwork Rating: Average; www.keysight.com) reported a 2.6% revenue decline in its 2015 fiscal year, which ended October 31, 2015, to $2.86 billion from $2.93 billion in 2014. Excluding exchange rates, revenue rose 1%. Before unusual items, earnings fell 15.0%, to $432 million from $508 million. Due to more shares outstanding, per-share earnings fell 17.1%, to $2.52 from $3.04. That’s partly because Keysight raised its research spending by 7.2%, to $387 million (or 13.6% of revenue) from $361 million (or 12.3%). The company aims to shift away from manufacturing testing equipment for electronic devices to more profitable businesses like software and services. However, its short-term outlook is weak, which is why the stock trades at just 12.0 times the $2.59 a share Keysight will probably earn in fiscal 2016....
DIEBOLD INC. $34 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 65.0 million; Market cap: $2.2 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.4%; TSINetwork Rating: Average; www.diebold.com) is buying German ATM maker Wincor Nixdorf AG for $1.8 billion (80% in cash and 20% in stock). The combined firm will be the world’s largest maker of ATMs, with 35% of the market and $5.2 billion in annual revenue. Diebold aims to close the deal in mid-2016. The company plans to borrow $2.8 billion to pay for Wincor, which will increase its total debt to around $3.5 billion. However, it should save $160 million a year by eliminating overlapping operations, which will help it pay down this debt. It will also cut its dividend rate by 67%, from $1.15 to $0.38, which would yield 1.1%....
UNITED TECHNOLOGIES CORP. $97 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 887.0 million; Market cap: $86.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.utc.com) has four main businesses: Climate, Controls & Security (30% of revenue, 32% of earnings) makes heating and air conditioning equipment under the Carrier brand, as well as burglar alarms and fire-safety products; Aerospace Systems (25%, 24%) makes enginecontrol systems and other parts for aircraft; Pratt & Whitney (23%, 17%) manufactures aircraft engines; and Otis (22%, 27%) makes elevators. Major takeover paid off The company’s revenue rose 7.1%, from $54.3 billion in 2010 to $58.2 billion in 2011. In 2012, it paid $18.3 billion for North Carolina-based Goodrich Corp., which makes aircraft parts (such as landing gear, wheels and brakes) and maintains and fixes planes. However, it also sold smaller businesses, so its revenue fell 0.8%, to $57.7 billion, in 2012....
BUCKEYE PARTNERS L.P. $67 (www.buckeye.com) is seeing strong demand for its oil-storage terminals as many producers store their crude instead of selling it at today’s depressed prices. However, lower prices are hurting revenue at Buckeye’s wholesaling business, which sells refined fuels, such as gasoline, home heating oil and propane....
CONAGRA FOODS INC., $40.85, New York symbol CAG, rose 5% this week after announcing it will spin off its commercial-food operations as a separate publicly traded company. This new business, called Lamb Weston, sells frozen potatoes and other vegetable products to restaurants and other food makers. It had $2.9 billion of revenue in ConAgra’s 2015 fiscal year, which ended May 31, 2015. The remaining operations will operate as Conagra Brands and will focus on the company’s branded consumer foods, including Chef Boyardee canned pastas, Hunt’s tomato sauce and Orville Redenbacher’s popcorn. It will also hold ConAgra’s 44% stake in the Ardent Mills flour-milling joint venture. In fiscal 2015, these businesses had $7.2 billion of revenue....
CALIAN TECHNOLOGIES LTD., $17.05, symbol CTY on Toronto, has won two more contracts for emergency response preparedness training, a new area for the company. These deals build on the first one it signed, with Bruce Power, earlier this year. No terms were disclosed. Under one of these new contracts, Calian will help Emergency Management British Columbia design, develop, conduct and evaluate an exercise in support of the province’s new Earthquake Immediate Response Plan. The other deal, with the City of Kingston, involves setting up a plan for simulating complex emergency situations and enhancing the city’s response procedures....
EXTENDICARE INC. $9.36 (Toronto symbol EXE; TSINetwork Rating: Extra Risk) (905-470-5534; www.extendicare.com; Shares outstanding: 87.7 million; Market cap: $833.7 million; Dividend yield: 5.1%) owns 57 longand short-term senior-care facilities that can house 8,118 residents. It also manages a further 95 residences that are home to 6,195 seniors. Extendicare also operates 47 ParaMed Home Health Care branches in six provinces. ParaMed’s 10,900 staff members provide nursing care and other forms of assistance to clients who live at home. In late 2014, the company sold its 156 U.S. facilities for after-tax proceeds of around $231.1 million U.S. Extendicare is now reporting improved results and has deployed the cash from the sale....
RESTAURANT BRANDS INTERNATIONAL $36.59 (New York symbol QSR; TSINetwork Rating: Average) (905-845-6511; www.rbi.com; Shares outstanding: 476.4 million; Market cap: $17.4 billion; Div. Yield: 1.4%) is the world’s third-largest fast-food operator, after McDonald’s and Yum Brands, with 14,669 Burger King outlets and 4,845 Tim Hortons stores in 100 countries. In the three months ended September 30, 2015, Restaurant Brands earned $162.7 million, up 26.8% from $128.3 million a year earlier. Earnings per share gained 25.9%, to $0.34 from $0.27, on more shares outstanding. However, sales fell 8.4%, to $1.02 billion from $1.11 billion, as the high U.S. dollar hurt the contribution from Restaurant Brands’ overseas operations....