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
TIM HORTONS INC. $49 (New York symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 166.9 million; Market cap: $8.2 billion; Price-to-sales ratio: 3.0; Dividend yield: 1.5%; TSINetwork Rating: Average; www.timhortons.com) operates 3,148 coffee-and-donut stores in Canada, plus a further 602 in the U.S. The company recently announced its first expansion outside North America. Dubai-based Apparel Group will open up to 120 Tim Hortons outlets in the United Arab Emirates, Qatar, Bahrain, Kuwait and Oman in the next five years. The recent wave of political unrest in the Middle East could hinder this expansion. However, Apparel will own and operate these outlets, so Tim Hortons’ risk is low....
Microsoft and Adobe should see a continued rise in demand for their software as the improving economy prompts businesses to upgrade their computers. Both firms also spend heavily on research, which helps them dominate their markets. However, we prefer Microsoft due to its steadier cash flows and dividend. MICROSOFT CORP. $26 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.4 billion; Market cap: $218.4 billion; Price-to-sales ratio: 3.3; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.microsoft.com) is the world’s largest software company. It gets 75% of its revenue from its Windows operating system and its Office suite of business programs. In its 2011 second quarter, which ended December 31, 2010, Microsoft’s earnings fell 0.4%, to $6.6 billion from $6.7 billion a year earlier. However, earnings per share rose 4.1%, to $0.77 from $0.74, on fewer shares outstanding. Revenue rose 4.9%, to $20.0 billion from $19.0 billion....
FAIR ISAAC CORP. $30 (New York symbol FICO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 40.1 million; Market cap: $1.2 billion; Price-to-sales ratio: 1.9; Dividend yield: 0.3%; TSINetwork Rating: Average; www.fairisaac.com) continues to see slow sales of its FICO software, which lets creditors use a customer’s information to calculate a credit score. That’s because high unemployment continues to hold back demand for new loans. In response, Fair Isaac will cut 9% of its workforce and combine certain facilities. These moves will cost it $0.18 a share. However, the resulting savings should raise its earnings per share by $0.30, to $1.87, in the fiscal year ending September 30, 2011. The stock trades at 16.0 times the new estimate. Fair Isaac is a hold.
GANNETT CO. INC. $15 (New York symbol GCI; Conservative Growth Portfolio, Consumer sector: Shares outstanding: 240.2 million; Market cap: $3.6 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.1%; TSINetwork Rating: Average; www.gannett.com) reported revenue of $1.25 billion in the three months ended March 27, 2011. That’s down 3.7%, from $1.3 billion a year earlier. The company is seeing lower advertising revenue at its 82 newspapers, including its flagship paper, USAToday, and its 23 TV stations. That’s mainly because its 2010 revenue benefited from advertising tied to the Olympics and the U.S. mid-term elections. Earnings fell 16.3% in the quarter, to $0.41 a share from $0.49. These figures exclude costs related to job cuts and closing facilities. These moves cut Gannett’s operating costs by 2.2% in the latest quarter. Gannett is a buy....
LIMITED BRANDS INC. $41 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 318.4 million; Market cap: $13.1 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.0%; TSINetwork Rating: Average; www.limitedbrands.com) operates two main retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (soaps and bath oils). This dividend-paying stock also operates the La Senza chain in Canada and 40 other countries. Sales fell 19.1%, from $10.7 billion in 2007 to $8.6 billion in 2010 (fiscal years end January 31). That’s mainly because it sold 75% of its Limited and Express clothing chains in 2007. Sales in rose 11.4%, to $9.6 billion, in 2011. Earnings rose 12.5%, from $1.68 a share in 2007 to $1.89 a share in 2008, but fell 65.6% to $0.65 a share in 2009. However, earnings soared to $2.42 a share in 2011. Excluding an investment gain, Limited earned $2.06 a share in 2011....
MACY’S INC. $25 (www.macys.com) reported that sales rose 1.6% at its 850 department stores in March 2011, to $2.21 billion from $2.17 billion in March 2010. Same-store sales rose 0.9%. The company expects same-store sales to rise by 8% to 9% in April 2011 from a year earlier, due to a cosmetics promotion and the later Easter holiday. Buy. STATE STREET CORP. $47 (www.statestreet.com) sells accounting and administrative services to large institutional investors, such as mutual funds and pension plans. The company continues to benefit from its recent acquisitions and improving financial markets. In the first quarter of 2011, State Street earned $0.88 a share, up 17.3% from $0.75 a year earlier. Buy. IDEXX LABORATORIES INC. $81 (www.idexx.com) is seeing improving demand for its veterinary products. However, at over 30 times its projected 2011 earnings, the stock is vulnerable to an earnings setback or other bad news. Hold.
PLEASE NOTE: Our next Hotline will go out on Friday, April 29, 2011. INTERNATIONAL BUSINESS MACHINES CORP., $168.28, New York symbol IBM, reported higher-than-expected earnings this week. In the three months ended March 31, 2011, IBM’s earnings rose 10.1%, to $2.9 billion from $2.6 billion a year earlier. Earnings per share rose 17.3%, to $2.31 from $1.97, on fewer shares outstanding. Excluding one-time items, such as costs related to acquisitions, IBM earned $2.41 a share. On that basis, the latest earnings beat the consensus estimate of $2.29....
PLEASE NOTE: We’ve put 12 sell recommendations, and our reasons for those recommendations, in the latest issue of Stock Pickers Digest. Here are the sells: Tethys Petroleum, symbol TPL on Toronto Pulse Seismic, symbol PSD on Toronto...
Long-time readers know that we are constantly reevaluating our stock picks. Here are 12 stocks that have only limited growth prospects for the foreseeable future. We now see them all as sells. TETHYS PETROLEUM $1.42 (Toronto symbol TPL) produces and explores for oil and gas in Central Asia. Operating in that region adds significant political and legal risk to the company’s already uncertain prospects. Sell. PULSE SEISMIC $2.23 (Toronto symbol PSD) buys, sells and licenses seismic data to clients in western Canada. Pulse’s thin-trading shares have risen 50% on higher oil and gas drilling activity. Now would be good time to take profits. Sell....
SASOL LTD. (ADR) $53.91 (New York symbol SSL; TSINetwork Rating: Extra Risk) (082-883-9697; www.sasol.com; ADRs outstanding: 641.4 million; Market cap: $34.6 billion; Dividend yield: 1.7%) has developed a technology to convert coal and natural gas into motor fuels. The company is now the world’s largest producer of fuel from coal at its facility at Secunda, South Africa. Sasol also produces synthetic fuels from natural gas at plants in Qatar and Nigeria. In addition, the company has substantial chemical-production interests, and produces oil and gas in Africa. Sasol is also South Africa’s third-largest coal producer. In the six months ended December 31, 2010, Sasol’s revenue rose 15.8%, to $9.9 billion from $8.6 billion a year earlier (all figures in U.S. dollars). Earnings per ADR rose 19.9%, to $1.87 from $1.56....