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
AMERICAN EXPRESS CO. $76 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.0 billion; Market cap: $76.0 billion; Price-to-sales ratio: 2.4; Yield: 1.5%; TSINetwork Rating: Average; www.americanexpress.com) issues the only credit card Costco accepts at its U.S. outlets. However, this deal expires in March 2016, so fewer Costco shoppers are signing up for new cards. As a result, Amex will likely sell these loans. The proceeds would help the company fund new services. For example, it recently launched Amex Express Checkout. Similar to PayPal (see page 73), this service makes it easier for U.S. cardholders to buy goods online. Meanwhile, Amex earned $1.47 billion in the second quarter of 2015, down 3.7% from $1.53 billion a year earlier. The 2014 quarter included 100% of Amex’s business-travel division, which it later merged into a 50/50 joint venture. Per-share profits fell 0.7%, to $1.42 from $1.43, on fewer shares outstanding....
Three of our long-time recommendations recently spun off a subsidiary as separate firm. This is a great way to unlock hidden value, as studies have shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years. Needless to say, things don’t always work out this well. Spinoffs and their parents do sometimes run into unforeseeable woes, which is why we don’t see all of these stocks as buys right now. EBAY INC. $29 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $34.8 billion; Priceto- sales ratio: 1.9; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) launched its online auction site in September 1995 and now has 157 million users worldwide. Sellers pay fees to list and sell their goods through eBay’s websites....
INTERNATIONAL BUSINESS MACHINES CORP. $161 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 985.0 million; Market cap: $158.6 billion; Price-to-sales ratio: 1.8; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.ibm.com) has developed a new computer chip with four times more transistors than current models by using a silicon-germanium base instead of pure silicon. This innovation will greatly speed up computers while using much less power. The company has sold most of its chipmaking operations over the past few years, so if this technology becomes commercially viable, IBM will license it to other manufacturers. Faster chips would also make the company’s analytics software perform better. IBM is a buy.
C.R. BARD INC. $195 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 74.2 million; Market cap: $14.5 billion; Price-to-sales ratio: 4.2; Dividend yield: 0.5%; TSINetwork Rating: Above Average; www.crbard.com) is benefiting from its growth strategy, which involves selling lessprofitable businesses and buying other medical-device makers. A good example is its 2011 purchase of Lutonix, which has developed a drug-coated balloon for treating clogged leg arteries. In the three months ended June 30, 2015, Bard’s earnings rose 7.9%, to $154.3 million from $143.0 million a year earlier. Per-share profits gained 10.2%, to $2.27 from $2.06. Sales gained 4.0%, to $859.8 million from $827.1 million. Bard gets two-thirds of its sales from customers outside of the U.S. If you exclude the negative impact of currency-exchange rates, its sales rose 8%. The stock trades at 21.6 times the $9.02 a share Bard will probably earn in 2015. That’s a reasonable multiple for the company, which spends 7% of its revenue on research....
KRAFT HEINZ CO. $78 (Nasdaq symbol KHC; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 1.2 billion; Market cap: $93.6 billion; Price-to-sales ratio: n.a.; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.kraftheinzcompany.com) took its current form on July 2, 2015, through the merger of Kraft Foods Group (old Nasdaq symbol KRFT) and H.J. Heinz. The new firm is North America’s third-largest food and beverage company and the world’s fifth biggest. It will have $29.1 billion of annual revenue, including eight brands with over $1 billion in yearly sales. The stock trades at a high 27.5 times the $2.84 a share the new firm should earn in 2015. However, that multiple should improve in the next few years as the company starts to see savings from merging plants and combining distribution networks. The $2.20 dividend yields 2.8%....
These two utilities continue to phase out their coalfired power plants to comply with tougher air-pollution laws. Regulators will let them pass along some of the costs to customers in the form of higher rates. We feel Alliant is in a better position than Ameren to meet the new standards. That will give it more room to raise its dividend. AMEREN CORP. $40 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 242.6 million; Market cap: $9.7 billion; Price-to-sales ratio: 1.6; Dividend yield: 4.1%; TSINetwork Rating: Average; www.ameren.com) provides power and natural gas to 3.3 million clients in Illinois and Missouri. In the three months ended March 31, 2015, warmerthan- usual winter weather prompted Ameren’s customers to use less power and gas for heating. That cut its revenue by 2.4%, to $1.56 billion from $1.59 billion a year earlier....
AT&T INC. $35 (New York symbol T; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 5.2 billion; Market cap: $182.0 billion; Price-to-sales ratio: 1.3; Dividend yield: 5.4%; TSINetwork Rating: Average; www.att.com) has completed its purchase of DirecTV, which has 20.4 million satellite TV customers in the U.S. and 19.5 million in Latin America. It also owns regional sports networks and other cable channels. AT&T paid $47.1 billion (69% stock and 31% cash). To win regulatory approval, the company agreed to expand its high-speed fibre-optic Internet service to more areas and upgrade Internet connections to schools and public libraries. By combining broadcasting and other facilities, AT&T should save $2.5 billion annually by the end of the third year. Adding DirecTV will also help the company negotiate better content deals with sports leagues and TV networks....
STANLEY BLACK & DECKER INC. $108 (New York symbol SWK; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 153.7 million; Market cap: $16.6 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.0%; TSINetwork Rating: Average; www.stanleyblackanddecker.com) continues to upgrade its operations following several years of growing through acquisitions, including its largest, the March 2010 purchase of rival toolmaker Black & Decker for $4.5 billion in stock. The efficiency improvements are freeing up cash for dividends: Stanley recently raised its payout by 5.8%. The new annual rate of $2.20 yields 2.0%. Stanley is a buy....
CINTAS CORP. $85 (Nasdaq symbol CTAS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 111.7 million; Market cap: $9.5 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.0%; TSINetwork Rating: Average; www.cintas.com) designs and makes uniforms, then sells them to over 900,000 businesses, mainly in North America. It also offers related products and services, like office cleaning and first aid kits. Last year, the company sold its document-shredding operations to Toronto-based Shred-it International. In exchange, it received 42% of the combined firm and $180 million in cash. In May 2015, the company received a $113.4-million dividend from Shred-it. Shred-it recently accepted a $2.3-billion takeover offer from Stericycle (Nasdaq symbol SRCL). As a result, Cintas will get between $550 million and $600 million for its stake. Stericycle expects to complete the purchase by the end of 2015....
GENUINE PARTS CO. $88 (New York symbol GPC; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 152.3 million; Market cap: $13.4 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.8%; TSINetwork Rating: Average; www.genpt.com) gets 53% of its sales and 55% 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 distributes industrial parts (31% of sales, 29% of earnings), office products (12%, 11%) and electrical equipment (4%, 5%). As the economy improved after the 2008/09 recession, the company’s sales rose 36.9% from $11.2 billion in 2010 to $15.3 billion in 2014. Overall earnings jumped 49.6%, from $475.5 million to $711.3 million. Per-share profits gained 53.7%, from $3.00 to $4.61, on fewer shares outstanding....