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
MCKESSON CORP. $226 (New York symbol MCK; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 232.8 million; Market cap: $52.6 billion; Price-to-sales ratio: 0.3; Dividend yield: 0.4%; TSINetwork Rating: Above Average; www. mckesson.com) is the largest wholesale drug distributor in the U.S. and Canada. It also sells surgical tools and health and beauty products. In addition, the company makes computers and software that help clinics and pharmacies manage their drug inventories. The technology solutions division accounts for just 2% of McKesson’s revenue but supplies 12% of its earnings. In February 2014, McKesson acquired 77.6% of Celesio AG, a German firm that distributes prescription drugs in Europe and Brazil. If you include McKesson’s share of Celesio’s cash, it paid $4.5 billion for this stake. Celesio has issued more shares since then, reducing McKesson’s interest to 75.9%....
The four lenders below (including American Express— see box) have passed the Federal Reserve’s latest “stress test,”which measures how financial firms would cope with a jump in unemployment, falling stock prices and other unfavourable conditions. As a result, they have all raised their dividends and announced new share buyback plans. WELLS FARGO & CO. $55 (New York symbol WFC; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 5.2 billion; Market cap: $286.0 billion; Price-to-sales ratio: 3.4; Dividend yield: 2.7%; TSINetwork Rating: Average; www.wellsfargo.com) will raise its quarterly dividend by 7.1%, to $0.375 a share from $0.35. The new annual rate of $1.50 yields 2.7%....
AMERICAN EXPRESS CO. $80 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.0 billion; Market cap: $80.0 billion; Price-to-sales ratio: 2.6; Dividend yield: 1.5%; TSINetwork Rating: Average; www.americanexpress.com) has raised its quarterly dividend by 11.5%, to $0.29 a share from $0.26. The new annual rate of $1.16 yields 1.5%. Amex also plans to repurchase up to $6.6 billion worth of its stock by June 30, 2016, up 50.0% from $4.4 billion in 2014. The company’s 2015 earnings will probably fall to $5.49 a share from $5.56 in 2014. However, Amex’s current restructuring plan, which includes a 6% cut to its workforce, could push its earnings up to $6.00 a share in 2016. The stock trades at 13.3 times that estimate....
ALCOA INC. $13 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.2 billion; Market cap: $15.6 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.9%; TSINetwork Rating: Average; www.alcoa.com) has agreed to buy RTI International Metals (New York symbol RTI), which makes titanium components for airplanes, armoured vehicles, oil and gas machinery and other industrial products. RTI’s investors will exchange their holdings for Alcoa common shares. If you include RTI’s cash balances and debt, the deal is worth $1.5 billion. Alcoa expects to close it in the next six months. Alcoa is a buy....
KRAFT FOODS GROUP INC. $83 (Nasdaq symbol KRFT; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 588.0 million; Market cap: $48.8 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.kraftfoodsgroup.com) is merging with H.J. Heinz. The new firm— The Kraft Heinz Company— will be the 5th largest food company in the world, with annual revenue of $28 billion. Under the terms of the deal, Kraft shareholders will receive one share of the new firm for each share they currently hold. They will also receive a special dividend of $16.50 a share....
QUAKER CHEMICAL CORP. $83 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 13.3 million; Market cap: $1.1 billion; Price-to-sales ratio: 1.5; Dividend yield: 1.4%; TSINetwork Rating: Average; www.quakerchem.com) began operating in 1918 and currently operates 34 plants in 21 countries. These facilities make lubricants and chemicals that keep mechanical parts from rusting. This small-cap stock is riskier than many of our other recommendations, but Quaker has a long history of increasing its earnings— and dividends. The company’s revenue rose 40.8%, from $544.1 million in 2010 to $765.9 million in 2014. That’s partly because it bought smaller firms that expanded its product lines and geographic reach....
SHERWIN-WILLIAMS CO. $281 (www.sherwin-williams.com) earned $9.31 a share in 2014, up 24.6% from $7.47 in 2013. Sales rose 9.3%, to $11.1 billion from $10.2 billion. These gains are partly due to Mexican paint maker Comex’s U.S. and Canadian operations (including 314 stores), which Sherwin bought for $165 million in September 2013. Higher home construction also spurred paint sales. In addition, Sherwin raised its dividend by 21.8%. The new annual rate of $2.68 yields 1.0%. However, the stock is expensive at 25.1 times its likely 2015 earnings of $11.18 a share. Hold. SONY CORP. ADRs $27 (www.sony.com) has started selling its new PlayStation 4 video-game console in China. The company has sold 20.2 million units since it launched the new version in November 2013. However, Chinese gamers tend to prefer playing on personal computers or mobile devices, so it is unclear if they will buy the PlayStation. Moreover, government controls on content limit the number of games people can play online. Hold.
FEDEX CORP., $172.04, New York symbol FDX, earned $580 million in the third quarter of its 2015 fiscal year, which ended February 28, 2015. That’s up 53.4% from $378 million a year earlier. Per-share earnings gained 63.4%, to $2.01 from $1.23, beating the consensus forecast of $1.87. The gains mainly resulted from the company’s recent restructuring and a 30.4% drop in fuel costs. Harsh winter weather in the year-earlier quarter also disrupted ground deliveries and depressed FedEx’s earnings. Overall revenue rose 3.7%, to $11.7 billion from $11.3 billion, missing the consensus estimate of $11.8 billion....
ALIMENTATION COUCHE-TARD INC., $49.29, symbol ATD.B on Toronto, operates 6,314 convenience stores throughout North America. The Canadian outlets operate under the Couche-Tard and Mac’s banners, while the U.S. stores mainly use the Circle K brand. In Europe, Couche-Tard operates 2,233 stores across Scandinavia (Norway, Sweden and Denmark), Poland, the Baltic States (Estonia, Latvia and Lithuania) and Russia. In the three months ended February 1, 2015, Couche-Tard’s sales rose just 1.7%, to $2.33 billion from $2.29 billion a year earlier (all figures except share price in U.S. dollars). The higher U.S. dollar cut the revenue contribution from the company’s European operations....
SIERRA WIRELESS $43.46 (Toronto symbol SW; TSINetwork Rating: Extra Risk) (604-231-1100; www.sierrawireless.com; Shares outstanding: 31.9 million; Market cap: $1.4 billion; No dividends paid) makes modules that connect products to the Internet. This is known as machine-to-machine (M2M), or more generally as the Internet of Things. Web-connected products can be remotely monitored—and potentially fixed—before they cause a breakdown. For example, makers of smart electricity meters, such as Itron, use the company’s modules to connect their products to the web. Sierra’s technology can also warn carmakers of possible defects developing in vehicles. The company has grown quickly over the last five years, with revenue rising 53.2%, from $358.0 million in 2010 to $548.5 million in 2014 (all figures except share price and market cap in U.S. dollars). It made $0.63 a share in 2014, up sharply from $0.23 in 2013....