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
Low interest rates, high unemployment and new banking regulations continue to weigh on the stock prices of Wells Fargo and J.P. Morgan. However, both companies have brought in tighter lending policies. That lowers their risk and improves their long-term outlooks. WELLS FARGO & CO. $26 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $137.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 1.8%; TSINetwork Rating: Average; www.wellsfargo.com) provides a wide variety of financial services through roughly 9,000 branches in the U.S. It also operates in Canada, the Caribbean and Central America. Warren Buffett’s Berkshire Hathaway holding company owns 7% of Wells Fargo’s shares. In the quarter ended September 30, 2011, Wells Fargo earned $4.1 billion, up 21.4% from $3.3 billion a year earlier. Earnings per share rose 20.0%, to $0.72 from $0.60, on more shares outstanding. More clients are repaying their loans on time. As a result, loan-loss provisions fell 47.4%, to $1.8 billion from $3.4 billion. That was the main reason for the earnings increase....
AMERICAN EXPRESS CO. $51 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $61.2 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.4%; TSINetwork Rating: Average; www.americanexpress.com) earned $1.2 billion, or $1.03 a share, in the three months ended September 30, 2011, up 13.0% from $1.1 billion, or $0.90 a share, a year earlier. Loan-loss provisions fell 33.2%, to $249 million from $373 million. Amex’s cardholders have above-average credit scores and incomes, so they are less likely to fall behind on their payments. Revenue in the quarter rose 8.6%, to $7.6 billion from $7.0 billion, as cardholders increased their spending by 16%. American Express is still a hold.
WAL-MART STORES INC. $57 (New York symbol WMT; Conservative Growth Portfolio: Consumer sector; Shares outstanding: 3.5 billion; Market cap: $199.5 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.walmart.com) had to temporarily shut down 13 of its stores in the Chinese city of Chongqing over charges that these outlets sold regular pork as higher-priced organic meat. The company entered China in 1996. It now operates 346 stores in that country. Food safety is a sensitive issue in China, and Wal-Mart is co-operating with local officials. That should prevent any permanent damage to its brand, and limit any loss of its Chinese market share. Wal-Mart is a buy....
FEDEX CORP. $81 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 317.2 million; Market cap: $25.7 billion; Price-to-sales ratio: 0.6; Dividend yield: 0.6%; TSI Network Rating: Average; www.fedex.com) earned $464.0 million, or $1.46 a share, in its fiscal 2012 first fiscal quarter, which ended August 31, 2011. That’s up 22.1% from $380.0 million, or $1.20 a share, a year earlier. These gains mainly came from the company’s ground and less-than-truckload delivery operations. Increased earnings at this division offset lower profits from the air delivery division, due to slowing Asian demand. Revenue rose 11.3%, to $10.5 billion from $9.5 billion. The company’s fuel costs jumped 40% in the latest quarter. To offset this increase, FedEx will raise its shipping rates by an average of 3.9%, starting January 2, 2012....
DIEBOLD INC. $32 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.2 million; Market cap: $2.1 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.5%; TSINetwork Rating: Average; www.diebold.com) is a leading maker of automated teller machines (ATMs). It also makes safes, vaults and building-security systems. To cut its reliance on ATMs, the company now offers more services, such as software, ATM maintenance and processing customer transactions. The company now gets over 50% of its revenue from services. That gives it recurring revenue and helps cut its risk.
International expansion continues
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EBAY INC. $31 (www.ebay.com) saw its earnings per share jump 20% in the three months ended September 30, 2011, to $0.48 from $0.40 a year earlier. These figures exclude unusual items, such as costs to integrate recent acquisitions. Revenue rose 31.9%, to $3.0 billion from $2.2 billion, mainly due to strong growth at its PayPal online payments business. Best Buy. LIMITED BRANDS INC. $43 (www.limitedbrands.com) will spend $590 million to upgrade its stores and open new outlets in fiscal 2013, which ends January 31, 2013. That’s up 38.8% from the $425 million it spent on capital improvements in fiscal 2012. Most of these funds will go toward opening new Victoria’s Secret lingerie stores outside the U.S. Limited held cash of $1.0 billion, or $3.44 a share, on July 31, 2011, so it can easily afford to expand. Buy. MTS SYSTEMS INC. $36 (www.mts.com) has raised its quarterly dividend by 25.0%, to $0.25 a share from $0.20. The new annual rate of $1.00 yields 2.8%. Buy.
INTERNATIONAL BUSINESS MACHINES CORP., $181.63, New York symbol IBM, reported higher-than-expected earnings for the latest quarter. However, the computer maker’s revenue fell short of expectations. That caused the stock to fall 5% this week. In the three months ended September 30, 2011, IBM earned $3.8 billion. That’s up 7.0% from $3.6 billion a year earlier. The company spent $3.4 billion on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose 13.1%, to $3.19 from $2.82. If you exclude unusual items, mainly costs to integrate acquisitions, IBM’s earnings per share would have risen 15.1%, to $3.28 from $2.85. On this basis, the latest earnings beat the consensus estimate of $3.22 a share. Revenue rose 7.8%, to $26.2 billion from $24.3 billion. That was less than the consensus estimate of $26.3 billion. If you exclude the positive impact of foreign-exchange rates, revenue would have risen 3%....
REITMANS, $14.60, symbol RET.A on Toronto, has decided to close its 25 Cassis stores. The company will then add these outlets to its other chains. Cassis is the newest of Reitmans’ banners. The company launched the chain in 2006. Its stores, which average 3,400 square feet, are located in major malls. Cassis sells business-casual clothing for women in their forties. Cassis supplies less than 2% of Reitmans’ yearly sales. However, the company will take a one-time charge of $4 million (after tax) in the current quarter to write down Cassis’ assets and pay severance to laid-off employees....
INTACT FINANCIAL CORP. $57.06 (Toronto symbol IFC; TSINetwork Rating: Speculative) (416-341-1464; www.intactfc.com; Shares outstanding: 109.4 million; Market cap: $6.2 billion; Dividend yield: 2.6%) is Canada’s largest provider of property and casualty insurance, based on premiums. Its brands include Intact Insurance, Canada BrokerLink, belairdirect and Grey Power. Intact has two product lines: its personal products, which contribute 70% of its premiums, include automobile and property insurance that Intact sells to individuals. Commercial products provide 30%, and include auto, property, liability, surety and specialty coverage that Intact mainly sells to small- and medium-sized businesses. In the three months ended June 30, 2011, Intact’s sales rose 2.7%, to $1.35 billion from $1.32 billion. Earnings per share fell 8.2%, to $1.12 from $1.22 a year earlier. However, the decline was mainly the result of catastrophic claims related to the Slave Lake, Alberta, wildfires and worse-than-usual spring storms. Those losses were partly offset by strong results from the company’s auto insurance business....
Yellow Media $0.22, symbol YLO on Toronto (formerly Yellow Pages Income Fund) has collapsed from around $6 at the start of this year to pennies, and has quit paying dividends. When Yellow Media first sold units to the public in 2003, many investors thought Yellow was a well-established company. In fact, it was more like an unwanted, over-the-hill business. In our view, it was just another new issue. As long-time readers know, we advise staying out of virtually all new issues. They come to market when it’s a good time for the company or its insiders to sell, and that almost always isn’t a good time for you to buy....