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
Chipmakers and software firms operate in highly competitive, fast-changing fields. To cut your risk, we recommend sticking with industry leaders who have built up strong reputations with their customers. These firms also have the financial strength to absorb the high cost of developing new products. Here are three tech companies that are leaders in their niche markets. Sales and earnings at all three are rising, but we see only two as buys at today’s prices. ADOBE SYSTEMS INC. $28 (Nasdaq symbol ADBE; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 490.9 million; Market cap: $13.7 billion; Price-to-sales ratio: 3.4; No dividends paid since June 2005; TSINetwork Rating: Average; www.adobe.com) makes software that lets...
INTEL CORP. $25 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.3 billion; Market cap: $132.5 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.intel.com) reported record revenue of $14.2 billion in the three months ended October 1, 2011. That’s up 28.2% from $11.1 billion a year earlier. Most of these gains came from strong sales of chips for notebook computers. Revenue from these products rose 21.7% in the quarter. Sales of chips for servers rose 14.9%. Earnings rose 17.4%, to a record $3.5 billion from $3.0 billion. During the quarter, Intel bought back $4.0 billion of its shares. Because of fewer shares outstanding, earnings per share rose 25.0%, to $0.65 from $0.52. The company spent 15.0% of its revenue on research in the latest quarter, so it’s more profitable than it seems. Intel is a buy.
SARA LEE CORP. $18 (New York symbol SLE; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 590.7 million; Market cap: $10.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.saralee.com) has agreed to sell most of its North American coffee operations to J.M. Smucker Co. (New York symbol SJM) for $350 million. The deal should close by the end of 2011. This business, which accounts for 6% of Sara Lee’s total revenue, sells a variety of coffee, tea and related equipment to restaurants. Smucker has also agreed to license Sara Lee’s coffee-making technology for an additional $50 million over the next 10 years. To put these figures in context, Sara Lee earned $338 million, or $0.54 a share, in the fiscal year ended July 2, 2011. This sale is part of Sara Lee’s plan to break itself into two separate, publicly traded companies. One of these firms will consist of Sara Lee’s international coffee and tea businesses. The other will focus on its North American packaged meat operations. The company aims to complete the breakup in the first six months of 2012....
WEYERHAEUSER CO. $17 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 538.7 million; Market cap: $9.2 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.5%; TSINetwork Rating: Extra Risk; www.weyerhaeuser.com) is a leading maker of forest products. It owns or leases over 21 million acres of timberland in the U.S. and Canada. Weyerhaeuser recently converted to a real estate investment trust (REIT). In connection with this change, it paid a special dividend in September 2010 that consisted of $560 million in cash and 324 million common shares. Many of Weyerhaeuser’s rivals operate as REITs, so this conversion will help it compete. REITs pay little or no income tax, and must pay 90% of their earnings to their shareholders as dividends. Right now, Weyerhaeuser pays a regular quarterly dividend of $0.15 a share, for a 3.5% annualized yield....
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.
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International expansion continues
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.