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
Unusual weather can cause big swings in gas and electricity demand. That can have a major impact on the earnings of Ameren and Alliant. Even so, their regulated businesses face little competition, and will continue to give them plenty of steady cash flows for dividends. Still, only one is a buy right now. AMEREN CORP. $30 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 241.1 million; Market cap: $7.2 billion; Price-to-sales ratio: 0.9; Dividend yield: 5.1%; TSINetwork Rating: Average; www.ameren.com) sells electricity and natural gas to 3.4 million customers in Illinois and Missouri. In the three months ended March 31, 2011, Ameren’s earnings fell 30.4%, to $71 million from $102 million a year earlier. Earnings per share fell 32.6%, to $0.29 from $0.43, on more shares outstanding. If you exclude unusual items, mainly gains on fuel-hedging contracts, earnings per share would have fallen 37.5%, to $0.25 from $0.40. The company had to repair storm damage, and paid higher coal prices; these were the main reasons for the lower earnings....
WAL-MART STORES INC. $53 (New York symbol WMT; Conservative Growth Portfolio: Consumer sector; Shares outstanding: 3.5 billion; Market cap: $185.5 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.walmart.com) has started streaming high-definition movies through its web site. Customers can either rent or buy these films. Demand for movie-streaming services is growing strongly. This new service will help Wal-Mart offset slowing sales of regular DVDs. Wal-Mart is a buy.
BROADRIDGE FINANCIAL SERVICES INC. $23 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 123.4 million; Market cap: $2.8 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.6%; TSINetwork Rating: Average; www.broadridge.com) has been chosen by Charles Schwab Corp. (Nasdaq symbol SCHW) to help operate a new online service that will let Schwab’s customers trade stocks and currencies in 12 foreign markets. Schwab plans to launch this service next year. Broadridge will provide the technology to process the currency trades, and handle accounting and reporting. Schwab is the world’s largest online brokerage firm. Broadridge could benefit further as Schwab expands its services for investing in international markets....
NCR CORP. $20 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 158.6 million; Market cap: $3.2 billion; Price-to-sales ratio: 0.7; No dividends paid; TSINetwork Rating: Average; www.ncr.com) has developed a new self-serve kiosk that will help immigrants to the U.S. fill out government forms. The machines will help users save time, and will be much cheaper than using an immigration consultant. ClearPath Inc., a private firm founded by former U.S. immigration officials, will supply the software for the kiosks. The U.S. government receives more than 100 million immigration forms each year, so these kiosks could see strong demand. The company will install the first five machines in stores that provide financial services to new immigrants in Houston, Texas....
UNITED TECHNOLOGIES CORP. $84 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 908.7 million; Market cap: $76.3 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.utc.com) has six main businesses: Pratt & Whitney makes aircraft engines (24% of 2010 revenue, 25% of profit); Otis makes and services elevators (21%, 32%); Carrier makes heating and air-conditioning equipment (21%, 14%); UTC Fire & Security sells burglar alarms and fire-protection services (12%, 9%); Sikorsky makes helicopters (12%, 8%); and Hamilton Sundstrand makes aircraft controls (10%, 12%). The U.S. government supplied 18.2% of United Technologies’ 2010 revenue, and is its biggest customer.
The company operates in cyclical industries. That adds to its risk. But it owns some of the top brands in its main markets, which helps it attract and retain customers. Moreover, many of its products, such as jet engines and elevators, need constant maintenance. The company now gets 40% of its revenue from ongoing sales of spare parts and services....
Top brands keep clients coming back
EBAY INC. $33 (www.ebay.com) is buying Zong, a private company that specializes in processing payments through mobile phones and other wireless devices. eBay will pay $240 million for Zong when the deal closes later this year. That’s equal to 38.0% of the $630.9 million, or $0.48 a share, that eBay earned in the three months ended June 30, 2011. Best Buy. MCKESSON CORP. $81 (www.mckesson.com) has raised its quarterly dividend by 11.1%, to $0.20 a share from $0.18. The new annual rate of $0.80 yields 1.0%. Buy. LA-Z-BOY INC. $8.71 (www.la-z-boy.com) earned $0.45 a share in the fiscal year ended April 30, 2011. That’s down 27.4% from $0.62 in 2010. Sales rose just 0.7%, to $1.19 billion from $1.18 billion, due to strong price competition from other furniture makers. As well, higher prices for wood, cotton and other raw materials will continue to hurt its profits. The stock has gained 1,598.1% since its March 2009 low of $0.53. We feel now is a good time to sell.
INTERNATIONAL BUSINESS MACHINES CORP., $185.18, New York symbol IBM, reported higher-than-expected earnings for the latest quarter. In the three months ended June 30, 2011, the company earned $3.7 billion. That’s up 8.2% from $3.4 billion a year earlier. IBM spent $4.0 billion on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose 14.9%, to $3.00 from $2.61. If you exclude unusual items, mainly costs to integrate acquisitions, IBM’s earnings per share would have risen 17.9%, to $3.09 from $2.62. On this basis, the latest earnings beat the consensus estimate of $3.03 a share....
GABRIEL RESOURCES, $7.69, symbol GBU on Toronto, has been granted a new archaeological discharge certificate for its 80.46%-owned Rosia Montana gold and silver project in Romania. The previous certificate, granted in 2004, was cancelled by an appeal court, which ruled that mining in the area would affect protected archeological remains. The proposed mine is near the site of ancient Roman mining tunnels, and had been the subject of protests from a group called the Rosia Montana Cultural Foundation. To get the archaeological discharge certificate, Gabriel has agreed to spend $70 million to preserve and develop local archeological and historic sites. The archaeological discharge certificate will help Gabriel get the other permits and approvals it needs to advance the Rosia Montana project....
FAIR ISAAC CORP. $30.26 (New York symbol FICO; TSINetwork Rating: Average) (415-472-2211; www.fairisaac.com; Shares outstanding: 45.3 million; Market cap: $1.2 billion; Dividend yield: 0.3%) already dominates the market for software used by businesses around the world to make better decisions on customer creditworthiness with its FICO Scores product. Now the company is profiting from the rising use of credit cards around the world, especially in emerging markets. For example, there are now over 200 million credit cards in use in China, and that could rise to over 900 million by 2020. FICO’s software is already used by 17 of the top 20 credit-card issuers worldwide, and manages 65% of the world’s billion credit cards. Fair Isaac continues to win new clients for its FICO Triad Customer Manager software. Triad can increase a card issuer’s revenue by up to 30%, cut delinquencies by 25%, and increase interest income by 25%....
We’ve long said that the fast-growing Chinese economy holds a lot of investor promise. But we’ve also cautioned that you need to be aware of the risks of investing in Chinese stocks. One major risk is that it can be hard to get accurate information on Chinese stocks. So if you have any doubts about the integrity of that information, you should get out. For example, we recommended selling Sino-Forest $4.59, symbol TRE on Toronto, in early 2004 after it gained 100% for us in just three months. That’s because we developed qualms about the quality of information that it was supplying to investors....