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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Growth Stocks Library Archives
SHERRITT INTERNATIONAL, $0.81, symbol S on Toronto, has suspended its $0.01-a-share quarterly dividend to conserve cash. The company had previously cut its payout from $0.043 a quarter to $0.01 in early 2014. Nickel prices have fallen 32%, to $4.50 U.S. a pound, since it made that cut. The elimination of the dividend should save $12 million a year. Sherritt has also said it will cut its 2016 capital spending by as much as 25% to 35%. Earlier this year, it lowered its planned 2015 capital spending to $195 million from $210 million....
GENERAL MILLS INC., $57.43, New York symbol GIS, is one of the world’s largest food makers. Top brands include Big G (cereal), Green Giant (canned and frozen vegetables), Pillsbury (baking dough), Old El Paso (tacos), Progresso (soups and salads) and Yoplait (yogourt). In its fiscal 2016 first quarter, which ended August 30, 2015, General Mills earned $426.6 million, up 23.6% from $345.2 million a year earlier. Earnings per share gained 25.4%, to $0.69 from $0.55, on fewer shares outstanding. Without unusual items, such as gains and losses on hedging contracts General Mills uses to lock in certain ingredient prices, earnings per share rose 29.5%, to $0.79 from $0.61. That beat the consensus estimate of $0.69....
Drug stocks operate under distinct negatives. For example, new drugs take years to win regulatory approval, if ever. As well, they face increasing litigation and aggressive competition from generics. However, we feel Pfizer will continue to overcome these challenges. Its high research spending is letting it replace drugs whose patents are expiring. The company also recently acquired Hospira, an innovative firm that’s successfully developing and selling a new class of drugs called biosimilars. These treatments give Pfizer a new source of growth to offset sales lost to generic drug makers. The stock is up 65.0% for us since we first recommended it in our July 2011 issue, but we feel it still has plenty of gains ahead....
CONAGRA FOODS INC. $40 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 429.2 million; Market cap: $17.2 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.conagrafoods.com) paid $4.75 billion for Ralcorp Holdings, the largest private-label food maker in the U.S., in January 2013. However, strong competition and higher ingredient costs have hurt Ralcorp’s earnings. In response, ConAgra aims to sell Ralcorp by the end of 2015. Excluding Ralcorp’s contribution and unusual items, ConAgra’s earnings rose 15.4% in its fiscal 2016 first quarter, which ended August 30, 2015, to $0.45 a share from $0.39 a year earlier. Sales gained 1.1%, to $2.79 billion from $2.76 billion. Consumer foods, such as Chef Boyardee canned pasta and Hunt’s tomato sauce, now supply 61% of ConAgra’s revenue. These products’sales fell 0.3%, as unfavourable currency rates offset higher selling prices....
These three small-cap manufacturers continue to dominate their niche industries. They’re staying ahead of the competition by developing innovative products or building their businesses through timely acquisitions. But all three operate in cyclical industries, and their share prices have fallen lately as economic growth slows. The high U.S. dollar is also hurting the contribution from their overseas operations. We feel they’ll need signs of improving global growth to move higher. TENNANT CO. $55 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.3 million; Market cap: $1.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.5%; TSINetwork Rating: Average; www. tennantco.com) makes industrial floor-cleaning equipment, including scrubbers, sweepers and polishers. It also manufactures cleaning gear for garages, stadiums, parking lots and city streets....
DIEBOLD INC. $30 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 65.0 million; Market cap: $2.0 billion; Price-to-sales ratio: 0.7; Dividend yield: 3.7%; TSINetwork Rating: Average; www.diebold.com) continues to move ahead with a major restructuring aimed at improving its efficiency and shifting its focus from building automated teller machines to services and software. The changes should save Diebold a total of $200 million by the end of 2017. It plans to devote $100 million of that to acquisitions and other investments. Meantime, Diebold’s earnings fell 46.6% in the three months ended June 30, 2015, to $22.2 million, or $0.34 a share. A year earlier, it earned $41.6 million, or $0.64. If you exclude restructuring costs, earnings per share declined 6.4%, to $0.44 from $0.47. However, its gross profit margin improved to 26.0% from 25.5%....
MCKESSON CORP. $198 (New York symbol MCK; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 232.0 million; Market cap: $45.9 billion; Price-to-sales ratio: 0.3; Dividend yield: 0.6%; TSINetwork Rating: Above Average; www.mckesson .com) is buying UDG Healthcare’s wholesale distribution operations. These businesses deliver prescription drugs and other products to drugstores in Ireland and Northern Ireland. McKesson also recently agreed to acquire 281 Sainsbury’s pharmacies in the U.K. The company expects to complete these purchases in the first half of 2016. It will pay roughly $600 million for both of these businesses, which together should add $0.10 to $0.14 a share to its annual earnings. To put these figures in context, McKesson earned $2.6 billion, or $11.11 a share, in the fiscal year ended March 31, 2015. These purchases are part of the company’s plan to cut its reliance on North America, which accounts for 90% of its revenue. However, using acquisitions to expand adds risk....
INTERNATIONAL FLAVORS & FRAGRANCES INC. $105 (New York symbol IFF; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 80.7 million; Market cap: $8.5 billion; Price-to-sales ratio: 2.7; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.iff.com) makes over 36,000 compounds that improve the taste of food and the smell of consumer products. IFF recently paid $311 million for Lucas Meyer Cosmetics, a Quebec-based company that supplies ingredients to makers of cosmetics and personal care products. It also acquired Henry H. Ottens Manufacturing, a private Philadelphia-based firm that makes flavourings for major food makers. IFF paid $199.2 million for this business....
GE and ABB (see box) continue to cut costs and sell less important assets, which puts them in a better position to withstand the slowdown in global growth. These moves will also spur their earnings when economic expansion picks up. GENERAL ELECTRIC CO. $25 (New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.1 billion; Market cap: $252.5 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.ge.com) has received approval from U.S. and European regulators for its alliance with France’s Alstom SA, a leading maker of parts for power plants and transmission gear. Under the deal, GE will form three 50/50 joint ventures with Alstom: one will combine their electrical grid operations, while a second will focus on products for renewable energy projects. The third will hold Alstom’s nuclear power equipment division....
ABB LTD. ADRs $17 (New York symbol ABB; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 2.3 billion; Market cap: $39.1 billion; Price-to-sales ratio: 1.0; Dividend yield: 4.4%; TSINetwork Rating: Above Average; www.abb.com) makes transformers, transmission systems and circuit breakers for electrical utilities. The Switzerland-based firm also produces automation systems and robotics for industrial clients. Due to slowing economic growth in China and developing countries, the company now expects its revenue to grow by 3% to 6% each year to 2020. That’s down from its earlier forecast of 4% to 7% annual growth. ABB is also reorganizing into four new divisions: Discrete Automation and Motion, Power Grids, Electrification Products and Process Automation. This change will make it easier for ABB to sell the Power Grids division, which makes transmission and distribution equipment for utilities. This business’s sales have slowed, and it faces strong competition from bigger firms like GE/Alstom....