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
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: 1.4; Dividend yield: 5.3%; TSINetwork Rating: Average; www.att.com) is buying satellite TV provider DirecTV (Nasdaq symbol DTV) for $48.5 billion (70% stock and 30% cash). Satellite TV demand has slowed in the past few years as consumers switch to online services like Netflix. However, DirecTV’s rural customers are a good fit with AT&T’s urban U-verse fibre optic TV service. It’s a bold move, but it could pay off. The takeover will make AT&T the second-largest provider of pay-TV services in the U.S., with 27 million subscribers. That will help it compete with Comcast, which will have 30 million customers after it buys rival Time Warner Cable. It will also give AT&T more clout when buying entertainment and sports programming....
The shift toward online shopping continues to pick up speed: over the next 10 years, e-commerce could account for 40% of all retail sales in developed nations and 30% in emerging markets. We feel the best way to profit from this trend is through shares of companies that process online payments and fulfill orders, like these three. VISA INC. $209 (New York symbol V; Conservative Growth Portfolio, Finance sector; Shares outstanding: 628.4 million; Market cap: $131.3 billion; Price-to-sales ratio: 10.9; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.visa.com) operates the world’s largest electronic payments network, through which it processes credit, debit, prepaid and commercial transactions....
INTEL CORP. $31 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.0 billion; Market cap: $155.0 billion; Price-to-sales ratio: 2.9; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.intel.com) now expects $13.7 billion of revenue in the second quarter of 2014, up from its earlier forecast of $13.0 billion. That’s because businesses are replacing their older computers at a faster-than-expected pace. The stock has gained 19% since the start of the year and trades at 15.2 times the $2.04 a share that Intel will probably earn in 2014. That’s a particularly attractive p/e ratio for a tech leader that spends a high 22% of its revenue on research. Intel is a buy.
ALCOA INC. $15 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.2 billion; Market cap: $18.0 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.8%; TSINetwork Rating: Average; www.alcoa.com) plans to upgrade its Hampton, Virginia, plant to make lightweight aluminum blades that help cut new jet engines’fuel consumption by 20% over older models. Alcoa will spend $25 million on this project. To put that in context, it earned $98 million, or $0.09 a share, in the three months ended March 31, 2014....
Both of these companies, which make ingredients for foods and other goods, now seem expensive in relation to their earnings. However, their high p/e ratios reflect their strong growth prospects, particularly in emerging markets. They’re also doing a good job of controlling costs, which helps them deal with unpredictable currency exchange rates and raw material prices. MCCORMICK & CO. INC. $71 (New York symbol MKC; Income Portfolio, Consumer sector; Shares outstanding: 119.0 million; Market cap: $8.4 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.1%; TSINetwork Rating: Average; www.mccormick.com) makes spices, herbs, seasonings and flavours. It sells these products to consumers and industrial clients....
PROCTER & GAMBLE CO. $79 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.7 billion; Market cap: $213.3 billion; Price-to-sales ratio: 2.7; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.pg.com) is selling most of its pet food business to privately held Mars Inc. The sale will let Procter focus on its more-profitable household and personal care products. The company will receive $2.9 billion when the deal closes in the next few months. To put that in context, Procter earned $2.6 billion, or $0.90 a share, in the quarter ended March 31, 2014. The company will likely use the cash to buy back more shares. Procter & Gamble is a buy.
North American and European consumers continue to shift away from cash and toward credit and debit cards. As a result, banks on those two continents are buying fewer automated teller machines. But ATM demand remains high in developing nations, where many stores only accept cash. That’s good news for ATM makers NCR and Diebold (also in this issue). Both are also diversifying into related products and offering more software and support services. NCR CORP. $33 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 167.9 million; Market cap: $5.5 billion; Price-to-sales ratio: 0.9; No dividends paid; TSINetwork Rating: Average; www.ncr.com) gets 52% of its revenue from ATMs. It also makes cash registers and self-serve checkouts (32% of revenue) and kiosks for theatres and arenas (10%). Maintenance services supply the other 6%. Overseas markets account for 60% of NCR’s revenue. In the quarter ended March 31, 2014, NCR’s revenue rose 7.7%, to $1.5 billion from $1.4 billion a year earlier. That’s partly due to its January 2014 purchase of privately held Digital Insight Corp., whose software helps over 1,000 banks and credit unions manage their online and mobile transactions....
DIEBOLD INC. $39 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.6 million; Market cap: $2.5 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.9%; TSINetwork Rating: Average; www.diebold.com) is a leading maker of automated teller machines. It also makes safes, vaults and building-security systems. The company gets 55% of its revenue from outside North America. In the three months ended March 31, 2014, Diebold’s revenue rose 8.6% to $688.3 million from $633.5 million a year earlier. If you exclude the negative impact of currency exchange rates, revenue rose 12.2%. That’s mainly because the company completed two large orders for election and lottery machines in Brazil. Diebold is shifting toward services and software, which give it recurring revenue and cut its reliance on ATM sales. Services and software accounted for 56% of its first quarter revenue....
APPLE INC. $90 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 6.0 billion; Market cap: $540.0 billion; Price-to-sales ratio: 3.2; Dividend yield: 2.1%; TSINetwork Rating: Average; www.apple.com) has agreed to a settle a lawsuit that accused the company and five publishers of working together to illegally increase e-book prices. The company did not say how much it would pay, but the lawsuit was seeking $840 million in damages. To put this in context, Apple held cash and investments of $150.6 billion, or $24.96 a share, as of March 29, 2014 (all per-share amounts adjusted for a 7-for-1 stock split in June 2014). Apple is a hold....
UNITED TECHNOLOGIES CORP. $116 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 916.7 million; Market cap: $106.3 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.0%; TSINetwork Rating: Above Average; www.utc.com) has amended its deal to build 28 Sikorsky Cyclone helicopters for the Canadian government. The company had planned to deliver these helicopters in 2012, but disputes over prices and support prompted it to suspend the program. It now plans to begin deliveries in 2015. The original contract was worth $4.6 billion. But due to the delays in starting up production, United Technologies will record a one-time charge of $440 million in the second quarter of 2014. However, it feels other unusual gains will offset this charge. As a result, the company still expects to earn $6.65 to $6.85 a share for all of 2014. The stock trades at 17.2 times the midpoint of that range. That’s a reasonable p/e ratio in light of its leading market share in its various niche industries (jet engines, elevators and heating and air conditioning equipment) and wide global reach (overseas markets account for 60% of its revenue)....