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
BAXTER INTERNATIONAL INC. $48 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 563.9 million; Market cap: $27.1 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.8%; TSINetwork Rating: Average; www.baxter.com) has purchased Baxa Corp., which makes products that improve the safety and effectiveness of oral and intravenous drugs. This company’s expertise will Baxter’s drug-delivery devices work better. Baxter paid $380 million for Baxa. That’s equal to 61% of the $624 million that Baxter earned before unusual items in the third quarter of 2011. The latest earnings are up 4.9% from $595 million a year earlier. Earnings per share rose 7.9%, to $1.09 from $1.01, on fewer shares outstanding. In addition, the company raised its quarterly dividend by 8.1%, to $0.335 from $0.31 a share. The new annual rate of $1.34 yields 2.8%....
In September 2000, the old Dun & Bradstreet split into two new companies: Moody’s and the new Dun & Bradstreet. Since then, Moody’s is up 149.2%, and Dun & Bradstreet has gained 247.5%. We feel both still have plenty of growth ahead. MOODY’S CORP. $32 (New York symbol MCO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 222.0 million; Market cap: $7.1 billion; Price-to-sales ratio: 3.2; Dividend yield: 2.0%; TSINetwork Rating: Average; www.moodys.com) provides credit ratings and other information on bonds and other securities. The company gets two-thirds of its revenue from credit ratings. The remaining third comes from its analytics businesses, which mainly sell credit-assessment software. There have been fewer issues of speculative-grade bonds and bonds backed by mortgages due to concerns over high European debt levels. That has hurt demand for the company’s credit ratings....
TEXAS INSTRUMENTS INC. $28 (New York symbol TXN [Switches to Nasdaq on January 1, 2012, symbol TXN]; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $30.8 billion; Price-to-sales ratio: 2.4; Dividend yield: 2.4%; TSINetwork Rating: Average; www.ti.com) is seeing weaker demand for its analog chips, which convert sound and images into digital signals that computers can understand. As a result, earnings per share will probably fall to $1.85 in 2011 from $2.62 in 2010. The stock trades at 15.1 times the new estimate. That’s still a reasonable p/e, particularly as chip sales should rebound in 2012 as manufacturers use up their inventories. Texas Instruments is a buy.
Rising raw material costs are a growing challenge for these two beverage makers. However, their well-known brands give them strong customer loyalty. That makes it easier for them to raise prices without hurting sales volumes. Their growing overseas operations also enhance their long-term prospects. PEPSICO INC. $64 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $102.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.pepsico.com) is the world’s second-largest soft-drink maker after Coca-Cola. It also makes other products, such as Frito-Lay snack foods, Tropicana fruit juices and Quaker Oats. PepsiCo recently raised its selling prices in response to rising ingredient costs. That’s the main reason why its sales rose 13.3% in the quarter ended September 3, 2011, to $17.6 billion from $15.5 billion a year earlier. In June 2011, PepsiCo paid $3.8 billion for Wimm-Bill-Dann, Russia’s largest dairy and juice company. This accounted for a third of the sales gain. Without unusual items, mainly costs to integrate recent acquisitions, earnings per share rose rose 7.4%, to $1.31 from $1.22....
CHEVRON CORP. $100 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $200.0 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.chevron.com) plans to spend $32.7 billion on capital upgrades in 2012. That’s up 25.8% from the $26.0 billion it will probably spend in 2011. About 87% of the 2012 spending will go toward oil and gas exploration and upgrades of existing projects and new developments. For example, Chevron’s new liquefied natural gas plants in Australia will increase its daily production by 13% by 2016. Chevron is a buy.
WINDSTREAM CORP. $12 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 515.8 million; Market cap: $6.2 billion; Price-to-sales ratio: 1.5; Dividend yield: 8.3%; TSINetwork Rating: Average; www.windstream.com) has completed its purchase of PAETEC Holding Corp., which sells telecommunication services to businesses in 46 states. Windstream paid $891 million in stock and assumed $1.4 billion of PAETEC’s debt. That gives the deal a total value of $2.3 billion. This is the latest in a series of acquisitions for Windstream. Its recent purchases pushed up its revenue by 6.0% in the third quarter of 2011, to $1.0 billion from $965.8 million a year earlier. However, the costs of integrating these new operations cut its earnings by 16.1%, to $71.5 million, or $0.14 a share, from $85.2 million, or $0.18 a share. As a result of the PAETEC purchase, Windstream will now get 70% of its revenue from selling highspeed Internet and business services. That cuts its reliance on its slow-growing home phone business. As well, the company can use PAETEC’s losses to lower its tax bill over the next five years. That should let its keep paying quarterly dividends of $0.25 a share, for an 8.3% annualized yield....
YUM! BRANDS INC. $58 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 460.5 million; Market cap: $26.7 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.0%; TSINetwork Rating: Above Average; www.yum.com) continues to expand in China, which now accounts for half of the company’s sales and earnings. Yum now plans to double its fast-food outlets in China to 9,000 by 2020. The company will focus its expansion on smaller cities, which usually have lower labour and rental costs than larger centres. That should make these new outlets more profitable. Yum Brands is a buy.
EBAY INC. $30 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $39.0 billion; Price-to-sales ratio: 3.6; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) operates the world’s largest online auction website, with over 99 million users in 39 countries. The company charges users fees to list and sell their goods through its websites. The company also operates several other websites, including StubHub (live event ticket sales), Shopping.com (comparison shopping) and Rent.com (apartment and house rentals). In all, these websites account for 55% of eBay’s overall revenue. The company gets a further 35% of its revenue by processing online financial transactions, mostly through its PayPal subsidiary....
VISA INC. $99 (www.visa.com) has raised its quarterly dividend by 46.7%, to $0.22 a share from $0.15. The new annual rate of $0.88 yields just 0.9%. However, Visa should continue to profit as more consumers pay for their purchases with credit cards instead of cash and cheques. Best Buy. GENERAL ELECTRIC CO. $17 (www.ge.com) continues to report lower loan losses at its lending division. As a result, GE has raised its quarterly dividend by 13.3%, to $0.17 a share from $0.15. The new annual rate of $0.68 yields 4.0%. Buy. BOEING CO. $70 (www.boeing.com) has raised its quarterly dividend by 4.8%, to $0.44 a share from $0.42. The new annual rate of $1.76 yields 2.5%. The company also received an order from Southwest Airlines for 150 of its new 737 MAX passenger jets and 58 other planes. The deal is worth $19 billion, or 29% of Boeing annual revenue of $66 billion. Buy.
BAXTER INTERNATIONAL INC., $48.08, New York symbol BAX, is buying Synovis Life Technologies Inc. (Nasdaq symbol SYNO), which makes surgical tools and medical patches for wounds and burns. The deal will close in the first quarter of 2012. This purchase looks like a nice fit with Baxter’s existing medical products. As well, Baxter can use its distribution networks to make Synovis’s products available to more consumers, particularly in fast-growing overseas markets. The purchase price is $325 million. However, Synovis holds cash of $65 million, so Baxter is really only paying $260 million. That’s easily affordable for Baxter, which earned $624 million, or $1.09 a share, in the three months ended September 30, 2011....