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
TOROMONT INDUSTRIES LTD., $32.47, symbol TIH on Toronto, distributes a wide range of industrial equipment, including machinery made by Caterpillar Inc. It also makes refrigeration systems through its CIMCO division. In the three months ended March 31, 2015, Toromont’s revenue rose 9.1%, to $340.2 million from $311.7 million a year earlier. Earnings gained 8.1%, to $20.1 million, or $0.26 a share, from $18.6 million or $0.24. The first quarter is typically the company’s slowest because of winter shutdowns in the construction industry. Toromont saw stronger demand from customers in construction and agriculture, which offset continued weak mining sales. It also cut costs....
MCDONALD’S CORP., $98.74, New York symbol MCD, reported lower quarterly results this week. However, the stock rose 4% on news that the company will soon unveil a new plan to spur sales. That’s in addition to several already-announced initiatives, like a simpler menu and a phase-out of chicken raised with certain antibiotics. It’s also closing 700 less profitable outlets, or about 2% of its 36,000 locations. In the three months ended March 31, 2015, the company’s earnings per share fell 30.6%, to $0.84 from $1.21 a year earlier. Excluding restructuring costs, McDonald’s earned $1.01 a share in the latest quarter, missing the consensus estimate of $1.06. As well, 70% of its sales come from overseas, and the high U.S. dollar cut the latest earnings by $0.09 a share....
IBM’s shares fell from $190 in October 2014 to $150 in December. That’s because many businesses are shifting to cheaper cloud computing platforms and spending less on IBM’s mainframes and consulting services. That has forced it to abandon its ambitious 2015 earnings target of $20.00 a share. But the company has a long history of shifting from unprofitable businesses to fast-growing ones. And we feel its new plan to focus on cloud computing and analytics software will spur its earnings for years to come. To top it off, IBM’s strong balance sheet gives it lots of room to keep buying back shares and raising its dividend. INTERNATIONAL BUSINESS MACHINES CORP. $165 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 985.0 million; Market cap: $162.5 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.ibm.com) traces its history back to 1911. Today, it’s one of the world’s largest computer companies, with operations in over 175 countries....
GANNETT CO., INC. $35 (New York symbol GCI; Conservative Growth Portfolio, Consumer sector: Shares outstanding: 227.8 million; Market cap: $8.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.3%; TSINetwork Rating: Average; www.gannett.com) publishes newspapers in the U.S. and U.K., including USAToday, its flagship paper. The company also owns 46 TV stations and websites that attract over 39 million unique visitors a month. In the three months ended March 29, 2015, Gannett’s revenue rose 4.9%, to $1.5 billion from $1.4 billion a year earlier. Strong gains at the broadcasting and digital divisions (49% of the total) offset an 8.8% decline at the publishing businesses (51%) due to weak ad revenue. Earnings improved 4.3%, to $0.49 a share from $0.47. The company still plans to spin off its publishing operations as a separate firm that will keep the Gannett name. The remaining company, called Tegna (New York symbol TGNA), will own the broadcast and Internet businesses....
These three companies have a long history of developing cutting-edge products. That’s partly why they’re hitting new multi-year highs. However, disruptive new technologies could quickly overtake their latest offerings and slow their growth. APPLE INC. $129 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.8 billion; Market cap: $748.2 billion; Price-to-sales ratio: 3.7; Dividend yield: 1.5%; TSINetwork Rating: Average; www.apple.com) aims to cut its reliance on the iPhone smartphone, which supplies nearly 70% of its revenue, with several new products....
GENERAL ELECTRIC CO. $27 (New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.1 billion; Market cap: $272.7 billion; Priceto- sales ratio: 1.8; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.ge.com) is selling most office buildings and real estate loans belonging to GE Capital, its financing subsidiary, to a group of investors for $26.5 billion. The company will also hand out its remaining 85% stake in Synchrony Financial (New York symbol SYF), which provides credit card loans through retailers. GE will give its shareholders the chance to swap their stock for Synchrony shares. It will take two years for GE to complete these transactions. After that, the financing business will supply just 10% of its earnings, down from 42% in 2014. The company plans to use the funds from these sales to buy back $50 billion worth of its shares....
GOOGLE INC. (Nasdaq symbols GOOG $539 [class C non-voting] and GOOGL $549 [class A voting]); Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 680.6 million; Market cap: $366.8 billion; Price-to-sales ratio: 5.5; No dividends paid; TSINetwork Rating: Above Average; www.google.com) may launch a paid version of its popular YouTube video-streaming website later this year. By paying a monthly fee, viewers would be able to watch videos without advertising. That would help YouTube compete with other streaming services, including Netflix and Hulu, and cut its reliance on selling ads. The company would have to share most of these subscription fees with content providers. Still, a subscription service could generate $2 billion of additional revenue a year for Google; the company’s total revenue was $66.0 billion in 2014. Shareholders should continue to hold their class A shares, but we recommend the cheaper class C stock for new buying....
NCR CORP. $30 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 168.6 million; Market cap: $5.1 billion; Price-to-sales ratio: 0.8; No dividends paid; TSINetwork Rating: Average; www.ncr.com) gets 54% of its revenue from automated teller machines (ATMs). It also makes cash registers and self-serve checkouts (31% of revenue) and kiosks for theatres and arenas (10%). The remaining 5% comes from maintaining this equipment. NCR is cutting its reliance on ATMs by purchasing other companies. In February 2013, it paid $788 million for Israel-based Retalix, whose software helps retailers manage their sales and track inventory. Companies with a combined 70,000 locations in over 50 countries use Retalix’s products. In January 2014, NCR acquired Digital Insight, whose software helps over 1,000 banks and credit unions manage online and mobile transactions, for $1.65 billion....
The oil price drop has prompted these two producers to shed less profitable businesses. That brightens their long-term prospects, but we prefer Chevron, as its refineries benefit from cheaper crude. CHEVRON CORP. $110 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.9 billion; Market cap: $209.0 billion; Price-to-sales ratio: 1.1; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www. chevron.com) recently sold its 50% stake in Caltex Australia, which owns an oil refinery and 1,800 gas stations in Australia, for $3.6 billion. The deal is part of Chevron’s plan to sell $15 billion worth of nonessential businesses by 2017. Even with these sales, the company’s oil output will probably average 3.1 million barrels a day in 2017, up 20.6% from 2.57 million in 2014....
INTERNATIONAL FLAVORS & FRAGRANCES INC. $116 (New York symbol IFF; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 80.7 million; Market cap: $9.4 billion; Priceto- sales ratio: 3.1; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.iff.com) is buying Henry H. Ottens Manufacturing, a private Philadelphia-based firm that makes flavourings for major food makers. IFF didn’t say how much it’s paying, but Ottens should add $60 million to its $3.1 billion of annual revenue. IFF expects to complete the purchase by June 30, 2015. The company has a history of using acquisitions to expand, which adds risk. However, this purchase gives IFF access to Ottens’ high-quality clients, particularly in the U.K....