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:

  1. Invest mainly in well-established companies;
  2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
  3. 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
AMAZON.COM INC., $216.23, symbol AMZN on Nasdaq, has unveiled new models of its Kindle electronic-book reader, including the Kindle Fire, the company’s first tablet computer.

The Kindle Fire features a seven-inch, full-colour touch-screen display. It is smaller and has less memory than the top-selling Apple iPad, but it will cost just $199 U.S., compared to $499 U.S. for an iPad.

The Kindle Fire connects to the Internet through Wi-Fi networks, and uses the popular Android operating system developed by Internet search provider Google (Nasdaq symbol GOOG). Amazon will start shipping the Kindle Fire to customers in the U.S. on November 15, 2011.

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UNITED TECHNOLOGIES CORP., $68.92, New York symbol UTX, is buying Goodrich Corp. (New York symbol GR). This North Carolina-based company makes a wide range of aircraft parts, including landing gear, wheels and brakes. It also maintains and repairs planes. United Technologies is paying $18.4 billion for Goodrich, including assuming $1.9 billion of the company’s debt. On June 30, 2011, United Technologies held cash of $5.4 billion, or $5.94 a share, so it will likely borrow the rest of the money it needs to buy Goodrich. Still, United Technologies can comfortably afford to take on more debt: its long-term debt of $9.5 billion is a low 15% of its $62.6-billion market cap. It also plans to raise $4.2 billion by selling shares....
ADOBE SYSTEMS INC., $24.88, symbol ADBE on Nasdaq, makes software that lets computer users create, edit and share documents in the popular PDF format. As well, graphic designers use Adobe’s software to create print publications and web pages. The company also makes Adobe Flash, which lets web site developers make web pages more interactive by adding animation and video. In its third quarter, which ended September 2, 2011, Adobe’s earnings fell 15.2% to $195.1 million, or $0.39 a share. A year earlier, it earned $230.1 million, or $0.44 a share. Without one-time items, earnings per share would have risen 1.9%, to $0.55 from $0.54. That beat the consensus estimate of $0.54 a share. Revenue rose 2.3%, to $1.01 billion from $990.3 million. That missed the consensus revenue estimate of $1.03 billion....
We still think investors will profit most — and with the least risk — by buying shares of well-established, dividend-paying stocks with strong business prospects. These are companies that have strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace. Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of low p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects....
MCGRAW-HILL COMPANIES INC. $43 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 301.3 million; Market cap: $13.0 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.3%; TSINetwork Rating: Average; www.mcgraw-hill.com) plans to split into two separate, publicly traded companies. One of these new firms, McGraw-Hill Markets, will sell a variety of 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. McGraw-Hill Markets will have annual revenue of $4 billion. International sales will account for 40% of that total. The other company, McGraw-Hill Education, will publish textbooks for schools and colleges. This business will have $2.4 billion of annual revenue....
ABB LTD. ADRs $18 (New York symbol ABB; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 2.3 billion; Market cap: $41.4 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.abb.com) is a leading maker of power technologies for utilities. The Switzerland-based company’s products include transformers, transmission systems and circuit breakers. ABB also makes automation systems and robotics. Clients in a wide range of industries use these systems to make their facilities more productive. ABB is taking advantage of the slow economy to make acquisitions. In January 2011, it paid $4.3 billion for Arkansas-based Baldor Electric Co., which makes electric motors and related products, such as conveyor belts, fans and pumps. Adding Baldor helped strengthen ABB’s North American operations. There is still plenty of room to grow in this region: right now, the Americas account for just 23% of ABB’s business. In the three months ended June 30, 2011, ABB’s revenue rose 27.8%, to $9.7 billion from $7.6 billion a year earlier. The gain was mainly due to Baldor’s contribution. If you exclude the positive impact of the low U.S. dollar on the company’s international operations, its revenue would have risen 17%. Earnings jumped 43.3%, to $893 million, or $0.39 per ADR (each American Depositary Receipt represents one ABB common share). A year earlier, the company earned $623 million, or $0.27 per ADR....
THE JONES GROUP INC. $10 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 85.9 million; Market cap: $859.0 million; Price-to-sales ratio: 0.3; Dividend yield: 2.0%; TSINetwork Rating: Average; www.jonesgroupinc.com) has completed its $350-million purchase of Kurt Geiger, a U.K.-based company that owns and operates 49 shoe stores in Europe. It also sells its products in upscale department stores. Without unusual items, including costs related to the Kurt Geiger purchase, Jones would have earned $27.2 million, or $0.33 a share, in the three months ended June 30, 2011. That’s down 27.5% from $37.5 million, or $0.45 a share, a year earlier. Sales rose 3.2%, to $887.4 million from $859.6 million. That’s because acquisitions offset slower sales of its jeanswear and other clothing. Jones Group is a hold....
MOTOROLA SOLUTIONS INC. $43 (New York symbol MSI; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 343.1 million; Market cap: $14.8 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.0%; TSINetwork Rating: Average; www.motorolasolutions.com) makes specialized equipment, such as bar-code scanners and radios for police and fire vehicles. It gets two-thirds of its revenue by selling its products to governments; The remaining third comes from businesses. The company’s earnings jumped 54.1% in the three months ended July 2, 2011, to $0.57 a share from $0.37 a year earlier. These figures exclude several unusual items, including costs related to the break-up of the old Motorola Inc. in January 2011. Revenue rose 6.1%, to $2.1 billion from $1.9 billion. Motorola Solutions now plans to pay quarterly dividends of $0.22 a share, for an annualized yield of 2.0%. It also aims to buy back $2 billion of its shares by the end of 2012. The company can easily afford this: it holds cash of $6.6 billion, or $19.39 a share. Its long-term debt is just $1.5 billion....
MCCORMICK & CO. INC. $46 (New York symbol MKC; Income Portfolio, Consumer sector; Shares outstanding: 132.3 million; Market cap: $6.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.7%; TSINetwork Rating: Average; www.mccormick.com) is the world’s leading maker of spices, herbs, seasonings, flavourings, sauces and extracts. It sells its products to consumers, restaurants and industrial food processors. Top brands include McCormick, Club House, Zatarain’s, Ducos and Schwartz. The company likes to grow by purchasing other spice makers. Contributions from these acquisitions are the main reason why McCormick’s revenue rose 22.8%, from $2.7 billion in 2006 to $3.3 billion in 2010 (the company’s fiscal year ends November 30). Earnings rose 54.1%, from $1.72 a share (or a total of $231.9 million) in 2006 to $2.65 a share (or $356.3 million) in 2010.

Acquisitions work for McCormick

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GENUINE PARTS CO. $50 (www.genpt.com) has acquired privately held Cobra Wire & Cable, Inc. Based in Pennsylvania, Cobra distributes insulated wires and cables to makers of telecom equipment, batteries and other electrical products, mainly under long-term supply contracts....