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
World stock market investing remains risky. That’s because many emerging countries have language barriers, weak investor-protection laws, less commitment to openness, fairness and so on. A better way for North American investors to profit from rapid overseas growth is by investing in well-established, multinational U.S. companies. These firms’ well-known brands put them in a good position to enter new markets and quickly win over new customers. A great example of a U.S. company with a knack for successfully expanding overseas is Yum Brands, one of our long-time favourites....
DIAGEO PLC ADRs $80 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 624.5 million; Market cap: $50.0 billion; Price-to-sales ratio: 3.3; Dividend yield: 3.1%; TSINetwork Rating: Above Average; www.diageo.com) is the world’s largest premium alcoholic beverage company. Like Yum Brands, U.K.-based Diageo is another Consumer stock that gives investors a less-risky way to profit from overseas markets. In the fiscal year ended June 30, 2011, Diageo’s sales rose 1.6%, to 9.9 billion pounds from 9.8 billion pounds (1 British pound = $1.63 Canadian). Sales in markets such as Latin America and Africa rose 13%, while sales in Asia Pacific grew 9%. These gains offset slower sales in North America (up 3%) and Europe (down 3%). Diageo earned 2.1 million pounds, or 3.34 pounds per ADR (each American Depositary Receipt represents four Diageo common shares). That’s up 16.3% from 1.8 billion pounds, or 2.88 pounds per ADR, in fiscal 2010....
Retail spending continues to rise in the U.S., even with continued weakness in job and housing markets. That’s good news for these three leading department-store operators. All three should continue to benefit from the investments they have made in new stores, and in building their brands and online businesses. MACY’S INC. $30 (New York symbol M, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 420.6 million; Market cap: $12.6 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.3%; TSINetwork Rating: Average; www.macysinc.com) operates 810 Macy’s and 41 Bloomingdale’s department stores in 45 states....
WAL-MART STORES INC. $56 (New York symbol WMT; Conservative Growth Portfolio: Consumer sector; Shares outstanding: 3.5 billion; Market cap: $196.0 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.walmart.com) is benefitting from recent acquisitions of retailers in South Africa and the U.K. That’s helping it offset slower growth in the U.S. In the three months ended October 31, 2011, sales rose 8.1%, to $110.2 billion from $102.0 billion a year earlier. Earnings fell 2.5% to $3.5 billion from $3.6 billion, mainly because of a lower tax bill in the year-earlier quarter. Earnings per share rose 2.1%, to $0.97 from $0.95, on fewer shares outstanding. Wal-Mart is a buy.
THE BOEING CO. $63 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 743.2 million; Market cap: $46.8 billion; Price-to-sales ratio: 0.7; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.boeing.com) has received an order from Indonesia’s Lion Air for 201 of its 737 MAX passenger jet planes and 29 of its extended-range 737 aircraft. In all, this order is worth a record $21.7 billion. If Lion Air exercises its option to buy an additional 150 planes, the order’s value would rise to $35 billion. That’s equal to roughly half of Boeing’s annual sales of $68 billion. The company will deliver these planes between 2017 and 2025. Boeing is a buy.
Many investors avoid small cap stocks, because they tend to more volatile than larger companies. You can offset this risk by sticking with small caps that are leaders in their niche markets. Here are three of our favourite small-cap stocks. However, only two are buys right now. MTS SYSTEMS CORP. $37 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.6 million; Market cap: $577.2 million; Price-to-sales ratio: 1.3; Dividend yield: 2.7%; TSINetwork Rating: Average; www.mts.com) makes equipment and software that tests materials, machines and structures. This helps manufacturers lower their costs and improve the quality of their products. MTS continues to see strong demand for its technology. New orders rose 27.5% in its 2011 fiscal year, which ended October 1, 2011, to a record $540.0 million from $423.5 million in 2010....
TENNANT CORP. $37 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.8 million; Market cap: $695.6 million; Price-to-sales ratio: 1.0; Dividend yield: 1.8%; TSINetwork Rating: Average; www.tennantco.com) now gets around 20% of its sales from its environmentally friendly floor scrubbers, which use electricity to make tap water act like a detergent. Thanks to strong demand for these products, Tennant’s sales rose 10.9% in the three months ended September 30, 2011, to $187.0 million from $168.6 million a year earlier. Earnings jumped 33.2%, to $9.7 million from $7.3 million. Per-share earnings rose 31.6%, to $0.50 from $0.38, on more shares outstanding. The stock has gained 20% in the past year, and now trades at a high 20.8 times the $1.93 a share Tennant will probably earn in 2011. That increases the risk of sudden drop if Tennant’s earnings growth slows, particularly if businesses put off buying new cleaning equipment because of the uncertain economy....
Encana (which focuses on natural gas) and Cenovus (which focuses on oil) took their present form in December 2009 following the breakup of the old EnCana Corp. New shale gas discoveries have pushed down gas prices. That has hurt the new Encana. Cenovus has fared better, due to stronger oil prices. We still see both as buys due to their their high-quality reserves and strong cash flows. ENCANA CORP. $18 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 735.4 million; Market cap: $13.2 billion; Price-to-sales ratio: 1.9; Dividend yield: 4.4%; TSINetwork Rating: Average; www.encana.com) has agreed to sell some of its natural gas properties in northern Texas for $975 million. The sale is part of the company’s ongoing plan to focus on its main properties in Alberta, B.C., Wyoming, Colorado and Louisiana. Including this sale, Encana will have sold $1.7 billion of properties in 2011. That’s within its original target of $1 billion to $2 billion....
BHP BILLITON LTD. ADRs $64 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.7 billion; Market cap: $172.8 billion; Price-to-sales ratio: 2.4; Dividend yield: 2.9%; TSINetwork Rating: Average; www.bhpbilliton.com) plans to spend $4.5 billion in 2012 to develop its North American shale gas properties. This spending will rise to $5.5 billion a year by 2015, and to $6.5 billion a year in 2020. BHP can easily afford these outlays; its cash flow was $30.1 billion, or $10.92 per ADR, in the year ended June 30, 2011. These investments will help BHP profit as more coal-burning power plants in the U.S. convert to natural gas. As well, the company plans to export liquefied natural gas to Europe and Asia. BHP Billiton is a buy.
WESTERN UNION CO. $16 (New York symbol WU; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 619.1 million; Market cap: $9.9 billion; Price-to-sales ratio: 1.9; Dividend yield: 2.0%; TSINetwork Rating: Above Average; www.westernunion.com) earned $249.4 million in the three months ended September 30, 2011. That’s up 0.6% from $247.9 million a year earlier. Due to fewer shares outstanding, earnings per share rose 8.1%, to $0.40 from $0.37. These figures exclude costs related to a recent restructuring, which mainly involved laying off workers and closing unneeded facilities. Revenue rose 6.1%, to $1.4 billion from $1.3 billion. In November 2011, the company completed its $945-million purchase of the business-payments division of U.K.-based Travelex Holdings Ltd. This company processes payments for 35,000 businesses in 14 countries. Integration costs will hurt Western Union’s 2012 earnings, but the purchase should add $0.04 a share to its 2013 earnings. Western Union is a buy....