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
MCDONALD’S CORP. $87 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.0 billion; Market cap: $87.0 billion; Price-to-sales ratio: 3.2; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.mcdonalds.com) is seeing stronger competition from other fast-food chains. The higher U.S. dollar is also undermining the value of its overseas profits. In the three months ended September 30, 2012, the company’s sales fell 0.2%, to $7.15 billion from $7.17 billion a year earlier. However, if you exclude the negative impact of foreign exchange rates, sales would have risen 4%. Overall same-store sales rose 1.9% in the quarter. Earnings fell 3.5%, to $1.46 billion from $1.51 billion. Due to fewer shares outstanding, earnings per share fell 1.4%, to $1.43 from $1.45. On a constant-currency basis, earnings per share would have risen 4%. The company also raised its quarterly dividend by 10.0%, to $0.77 a share from $0.70. The new annual rate of $3.08 yields 3.5%....
These two leading banks have recovered strongly from the 2008/2009 financial crisis. Their healthier balance sheets and tighter lending policies have also lowered the risk of future writedowns. We feel J.P. Morgan is the better choice right now. WELLS FARGO & CO. $34 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $180.2 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.6%; TSINetwork Rating: Average; www.wellsfargo.com) earned $4.9 billion, or $0.88 a share, in the three months ended September 30, 2012. That’s up 21.7% from $4.1 billion, or $0.72 a share, a year earlier. The bank continues to do a good job of adjusting the terms of troubled loans it acquired when it bought rival banking firm Wachovia in 2008. In the latest quarter, it set aside $1.6 billion to cover bad loans, down 12.1% from $1.8 billion a year ago....
STATE STREET CORP. $44 (New York symbol STT; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 479.1 million; Market cap: $21.1 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.2%; TSINetwork Rating: Extra Risk; www.statestreet.com) has completed its $550-million purchase of the hedge fund management business of Goldman Sachs Group Inc. (New York symbol GS). These operations should immediately add to its earnings. Meanwhile, the company earned $473 million in the three months ended September 30, 2012. That’s down 0.6% from $476 million a year earlier. Earnings per share rose 3.1%, to $0.99 from $0.96, on fewer shares outstanding. Revenue fell 2.7%, to $2.35 billion from $2.41 billion, as lower volumes hurt its trading division. State Street is a buy.
We constantly reevaluate our stock picks, to single out those with the best ratio of low risk and strong potential. These three no longer pass this test, and we now see them as sells. WEYERHAEUSER CO. $28 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 537.8 million; Market cap: $15.1 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.4%; TSINetwork Rating: Extra Risk; www.weyerhaeuser.com) is a leading maker of forest products, including paper and packaging. The stock is up 48% since the start of 2012. That’s mainly because of signs that the U.S. housing market is starting to recover, which should spur lumber demand. However, paper prices remain depressed....
PHILIPS ELECTRONICS N.V. ADRs $25 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $25.0 billion; Priceto- sales ratio: 0.8; Dividend yield: 3.7%; TSINetwork Rating: Average; www.philips.com) continues to make progress with a major restructuring plan that includes cutting 4% of its workforce. This should save it 1.1 billion euros annually by 2015 (1 euro = $1.29 Canadian). It is also expanding its less-cyclical operations, such as medical equipment, and may sell its consumer electronics division. Mainly due to savings from its restructuring, Philips’ earnings rose 30.8% in the three months ended September 30, 2012, to 170 million euros, or 0.18 euros per ADR (each American Depositary Receipt equals one Philips common share). A year earlier, it earned 130 million euros, or 0.14 euros per ADR. Sales rose 13.6%, to 6.1 billion euros from 5.4 billion euros. Philips is still a hold.
FEDEX CORP. $91 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 314.1 million; Market cap: $28.6 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.6%; TSI Network Rating: Average; www.fedex.com) is seeing lower demand for its overnight international air delivery services. That’s because the uncertain economy is prompting shippers to use lower but cheaper forms of transportation, such as trucks and ships. In response, FedEx plans to lower its costs by replacing older planes and trucks with more fuel-efficient models. It is also cutting jobs and consolidating facilities. The company expects these moves to increase its earnings by $1.7 billion by May 31, 2015, which is the end of its 2015 fiscal year. In its latest fiscal year, FedEx earned $2.1 billion, or $6.59 a share. FedEx is a buy....
NVIDIA CORP. $12 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 619.5 million; Market cap: $7.4 billion; Price-to-sales ratio: 1.9; No dividends paid; TSINetwork Rating: Average; www.nvidia.com) is down 5% in the past three months, mainly due to concerns that slowing sales of new computers will hurt demand for its graphic chips. However, the company continues to develop new chips for mobile devices. Consumer products like smartphones and tablets accounted for just 17% of Nvidia’s revenue in the quarter ended July 29, 2012, but the contribution from these chips should continue to rise. The company’s Tegra 3 chips power two new tablet computers: Google’s Nexus 7 and Microsoft’s Surface RT. The company’s strong balance sheet will also support its high research spending (26.9% of revenue in the latest quarter). Nvidia holds cash of $3.3 billion, or $5.29 a share. Its long-term debt is just $20.2 million....
MCGRAW-HILL COMPANIES INC. $55 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 280.2 million; Market cap: $15.4 billion; Price-to-sales ratio: 2.4; Dividend yield: 1.9%; TSINetwork Rating: Average; www.mcgraw-hill.com) will soon split into two separate, publicly traded companies. One of these new firms, McGraw-Hill Financial, will sell financial-information products. This business will include Standard & Poor’s, which provides credit ratings on bonds, and McGraw-Hill’s J.D. Power market- research firm. Right now, this division supplies 60% of McGraw-Hill’s total revenue. The other company, McGraw-Hill Education Inc., will publish textbooks for schools and colleges. It sells its products in 28 countries and 65 languages....
TEXAS INSTRUMENTS INC. $28 (www.ti.com) now gets 70% of its sales from analog chips and embedded processors, which convert sounds and temperatures into digital signals that computers can understand. Demand for these chips tends to be less volatile than chips for mobile devices....
GOOGLE INC., $681.79, Nasdaq symbol GOOG, reported lower-than-expected earnings this week, mainly due to higher costs following its acquisition of cellphone maker Motorola Mobility in May 2012. The company is also earning less per online ad. These factors caused the stock to fall 8%. In the three months ended September 30, 2012, earnings fell 20.3%, to $2.2 billion, or $6.53 a share. It earned $2.7 billion, or $8.33 a share, a year earlier. If you exclude costs to integrate Motorola and other unusual items, earnings per share would have fallen 7.1%, to $9.03 from $9.72. That missed the consensus estimate of $10.63 a share. Revenue in the quarter jumped 45.1%, to $14.1 billion from $9.7 billion. Motorola accounted for 59% of the increase....