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
RUBY TUESDAY INC., $7.66, symbol RT on New York, has appointed J.J. Buettgen as its new president and CEO. The move comes after Ruby Tuesday’s founder, Sandy Beall, stepped down in June after heading the company for 40 years. Buettgen was formerly the chief marketing officer at Darden Restaurants (symbol DRI on New York). Darden is the world’s largest casual dining operator, with more than 2,000 restaurants in the U.S. and Canada. It owns the Olive Garden, Red Lobster, LongHorn, Capital Grille, Bahama Breeze and Seasons 52 chains. Ruby Tuesday has 712 company-owned restaurants; franchisees operate another 78. Ruby Tuesday should be a good fit for Buettgen. The company has developed a number of new concepts, including Marlin & Ray’s seafood restaurants and Lime Fresh Mexican Grills, so it needs someone with experience promoting multiple brands. As well, Buettgen has worked on turning around Darden’s well-established but underperforming Olive Garden and Red Lobster chains....
AGILENT TECHNOLOGIES INC., $36.88, New York symbol A, makes testing systems that help electronics companies improve their products. It also manufactures testing equipment for medical research labs. The company recently completed its $2.2-billion purchase of Dako, a Denmark-based private firm that makes cancer-detection equipment. Dako sells its products in over 80 countries and has $340 million of annual revenue. This acquisition pushed up Agilent’s revenue by 3.7% in its 2012 fiscal year, which ended October 31, 2012, to $6.9 billion from $6.6 billion in fiscal 2011. Equipment orders rose 1.6% from 2011....
On October 1, 2012, the old Kraft Foods Inc. (old Nasdaq symbol KFT) broke itself into two publicly traded companies: Mondelez International and Kraft Foods Group. Kraft shareholders received one share of the new Kraft Foods Group for every three shares they held. This was a tax-free transaction: shareholders will not have to pay capital gains taxes until they sell their new shares. After the distribution, each old Kraft share became one Mondelez common share. Investors should allocate 64.91% of their adjusted cost base to Mondelez and the remaining 35.09% to Kraft Foods Group. Break-ups like this tend to work out well for investors, because the total value of the new companies usually exceeds the value of the former parent over time. We like the long-term outlook for both of these new companies. However, we prefer Kraft Foods Group for new buying....
NVIDIA CORP. $12 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 624.9 million; Market cap: $7.5 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.5%; TSINetwork Rating: Average; www.nvidia .com) is down 20% in the past year. That’s mainly because slowing sales of traditional computers are hurting demand for its graphic chips, which make computer video run more smoothly and appear more lifelike. Nvidia continues to invest a high 24% of its revenue in research. That’s helping it expand into new areas, particularly chips for mobile devices. Its new Tegra chips now power Google and Microsoft’s new tablet computers. As the world’s leading make of video chips, Nvidia will also benefit from several long-term trends. These include new video games with faster, more realistic characters and action. Device makers are also upgrading their smartphones and tablets with higher quality displays....
Like Kraft (see page 111), Sara Lee Corp. recently split into two separate companies: U.S.-based Hillshire Brands and Holland-based D.E. Master Blenders. Both stocks have stayed in a narrow range sincethe split in June 2012. That’s partly because investors often dump new shares they didn’t want. As well, few brokers cover these new companies. However, spinoffs tend to pay off for patient investors. Their smaller size could also make theses two new companies attractive takeover targets....
DUN & BRADSTREET CORP. $76 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 44.6 million; Market cap: $3.4 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.0%; TSINetwork Rating: Average; www.dnb.com) shot up to around $84 in August 2012 on speculation that the company may sell itself. However, reports that it has stopped looking for a buyer caused the stock to fall to its current price. Meanwhile, the slow economy is hurting demand for Dun & Bradstreet’s credit reports. In the third quarter of 2012, its revenue fell 6.0%, to $413.2 million from $439.4 million a year earlier. However, savings from a cost-cutting plan pushed up its earnings by 13.4%, to $79.4 million from $70.0 million. Due to fewer shares outstanding, earnings per share rose 23.9%, to $1.76 from $1.42. Dun & Bradstreet is still a hold.
New car sales continue to rebound strongly since the end of the 2008-2009 recession. That’s partly because more consumers in developing countries can now afford new cars. Low interest rates are also spurring automobile sales. These three carmakers offer a good way for investors to gain exposure to rapidly growing emerging markets with moderate risk. Their low p/e’s also add to their appeal. Still, we see only two as buys right now. TOYOTA MOTOR CO. ADRs $84 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.7 billion; Market cap: $142.8 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.toyota.com) is the world’s largest carmaker based on sales. Japan is the company’s largest market, accounting for 28% of its revenue, followed by North America (26%), Asia (19%), Europe (9%) and the rest of the world (18%)....
EBAY INC. $49 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $63.7 billion; Price-to-sales ratio: 4.6; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) aims to profit from rising demand for online shopping in China through a new alliance with Xiu.com, a leading Chinese seller of luxury goods. Under the deal, the partners will launch a new website, ebay.xiu.com, which will let certain U.S. retailers sell their goods at fixed prices. The sellers will then send the orders they receive from the site to eBay’s Dallas warehouse, which will forward the goods to China. Xiu.com will handle local shipping and customer service. eBay is a buy.
HEWLETT-PACKARD CO. $12 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.0 billion; Market cap: $24.0 billion; Price-to-sales ratio: 0.2; Dividend yield: 4.4%; TSINetwork Rating: Above Average; www.hp.com) paid $11.1 billion in August 2011 for U.K.-based Autonomy Corp., which makes software that helps businesses organize information in a variety of formats, including email, web pages and documents. The company now claims that improper accounting policies made Autonomy look more profitable that it really was. As a result, it wrote down the value of this purchase by $8.8 billion. Hewlett will try to recover some of these losses through lawsuits. However, that could take years. As well, sales of the company’s computers and printers continue to decline as consumers shift to tablet computers....
New environmental regulations are forcing these two power companies to close their coal-fired plants or install new pollution-control equipment. However, regulators are reluctant to let them pass these costs on to their customers. Even so, both companies should be able to maintain their current dividends. AMEREN CORP. $29 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 242.6 million; Market cap: $7.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 5.5%; TSINetwork Rating: Average; www.ameren.com) sells power and natural gas to 3.3 million clients in Illinois and Missouri. In the three months ended September 30, 2012, Ameren’s earnings fell 15.2%, to $323 million, or $1.33 a share. A year earlier, it earned $381 million, or $1.57 a share. These figures exclude unusual items, such as a writedown of a coal-fired power plant....