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
VERIGY LTD. $14 (Nasdaq symbol VRGY; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 60.7 million; Market cap: $849.8 million; Price-to-sales ratio: 1.6; No dividends paid; TSINetwork Rating: Extra Risk; www.verigy.com) jumped to $29 in its first year following its spinoff from Agilent in 2006. However, it has not rebounded as strongly from the recession as its former parent. That’s why Verigy is now a takeover target. In November 2010, Verigy agreed to acquire LTX-Credence Corp. (Nasdaq symbol LTXC), a rival maker of computer-chip testing equipment. However, in December 2010, Japan-based Advantest Corp. (New York symbol ATE) offered to buy Verigy for $15.00 a share. Advantest is the world’s largest maker of chip-testing equipment....
These four suppliers of medical devices and services will face higher costs as new U.S. health-care reforms are put in place. However, all four should continue to benefit as health spending grows and the population ages. Demand for their products is also rising overseas. MCKESSON CORP. $78 (New York symbol MCK; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 254.3 million; Market cap: $19.8 billion; Price-to-sales ratio: 0.2; Dividend yield: 0.9%; TSINetwork Rating: Average; www.mckesson.com) is the largest wholesale drug distributor in the U.S. and Canada. It also owns 49% of Mexico’s largest drug distributor. McKesson’s customers include 40,000 pharmacies, as well as doctor’s offices, hospitals and clinics. The company also supplies surgical tools and health and beauty products. McKesson continues to see strong growth from its technology-solutions division, which makes computers and software that help pharmacies and clinics manage their drug inventories. This division accounted for just 3% of McKesson’s sales, but around 25% of its earnings....
FEDEX CORP. $89 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 315.7 million; Market cap: $28.1 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.5%; TSI Network Rating: Average; www.fedex.com) earned $231 million, or $0.73 a share, in the three months ended February 28, 2011. That’s down 3.3% from $239 million, or $0.76 a share, a year earlier. The decline was mainly due to $43 million in one-time costs to merge its FedEx Freight and FedEx National LTL (less than truckload) divisions into a single business unit. Bad winter weather in the U.S. also increased its aircraft-maintenance costs. Revenue rose 11.0%, to $9.7 billion from $8.7 billion, as the improving economy continues to spur demand for delivery services. FedEx is a buy.
CHEVRON CORP. $105 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $210.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.chevron.com) is selling a refinery in Wales and over 1,000 Texaco gas stations in the U.K. and Ireland for $730 million. That’s equal to 4% of its 2010 earnings of $19.0 billion, or $9.48 a share. The cash will help Chevron expand its 47.3%-owned Gorgon natural-gas project off the west coast of Australia. Gorgon should start operating in 2014. Chevron’s share of the project’s $37-billion cost is $17.5 billion. This project will help Chevron take advantage of rising demand for cleaner-burning fuels in Asia. Chevron is a buy.
NCR CORP. $19 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 160.1 million; Market cap: $3.0 billion; Price-to-sales ratio: 0.6; No dividends paid; TSINetwork Rating: Average; www.ncr.com) is a leading maker of automated teller machines (ATMs), checkout scanners, cash registers and self-serve kiosks. The company gets half of its revenue from selling and installing this equipment. The other half comes from selling supplies and maintenance services. NCR continues to see strong demand for its self-serve checkout systems. That’s because these devices help retailers cut their labour costs. However, ATM demand remains weak, as banks continue to conserve cash in the wake of the 2008-2009 financial crisis. The company aims to spur growth by applying its expertise to new markets. For example, two years ago it started renting and selling DVD movies under the “BlockBuster Express” name through 8,000 self-serve kiosks in the U.S. (NCR licenses the name, so BlockBuster’s bankruptcy should have little impact on its DVD business.) Right now, DVDs account for less than 5% of NCR’s revenue....
These two phone companies have limited growth prospects. But their high dividends seem safe for now. FRONTIER COMMUNICATIONS CORP. $8.03 (New York symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 993.8 million; Market cap: $8.0 billion; Price-to-sales ratio: 2.1; Dividend yield: 9.3%; TSINetwork Rating: Average; www.frontier.com) sells Internet and traditional phone services to 7.4 million customers in 27 states. Its clients are mainly in rural and suburban areas. The company took its current form in July 2010 when it acquired 4 million traditional phone customers from Verizon Communications Inc. (also in this issue). In return, Verizon shareholders received 0.24 shares of Frontier for each Verizon share they held. That gave them 68% of Frontier. If you assume the transaction occurred at the start of 2009, Frontier’s revenue would have fallen 6.9%, to $5.65 billion in 2010 from $6.1 billion in 2009. If you exclude one-time items, such as costs to integrate the Verizon accounts, earnings fell 25.2%, to $324 million, or $0.33 a share, from $433 million, or $0.44....
VERIZON COMMUNICATIONS INC. $37 (New York symbol VZ, Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.8 billion; Market cap: $103.6 billion; Price-to-sales ratio: 1.0; Dividend yield: 5.3%; TSINetwork Rating: Average; www.verizon.com) is buying Terremark Worldwide Inc. (Nasdaq symbol TMRK), which provides data-storage services in the U.S., Europe and Latin America. The $1.4-billion price is just 4% of Verizon’s 2010 cash flow of $35.3 billion. It aims to complete the purchase in April 2011. Terremark will help Verizon take advantage of growing demand for cloud computing. That’s where data and software are kept on one or more centralized servers. Users connect to these servers over the Internet through a variety of devices. Verizon is a buy.
HEWLETT-PACKARD CO. $42 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.2 billion; Market cap: $92.4 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.1%; TSINetwork Rating: Above Average; www.hp.com) has raised its quarterly dividend by 50.0%, to $0.12 a share from $0.08. The new annual rate of $0.48 yields 1.1%. Like Verizon (later in this issue), Hewlett plans to grow by aggressively expanding into cloud computing. Hewlett will aim its cloud-computing products at smaller businesses, instead of big corporate and government clients. That way, it will avoid directly competing with larger companies like IBM (also in this issue). Hewlett will also let software developers use its new cloud-computing platform to test and secure their programs, and sell them to businesses and consumers. This new platform will also help Hewlett sell more of its own software....
INTERNATIONAL BUSINESS MACHINES CORP. $160 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.2 billion; Market cap: $192.0 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.ibm.com) has moved down from its all-time high of $167.72 in March 2011. That’s mainly because of the earthquake and tsunami in Japan. IBM gets 11% of its sales from Japan, so sales of mainframe computers and services to Japanese customers will suffer while the country rebuilds. However, strong demand in China and other emerging markets, like Russia and Brazil, should offset any drop in Japanese sales. By 2015, IBM feels these markets will supply 30% of its overall revenue. IBM is still a buy.
ARCHER DANIELS MIDLAND CO. $36 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 637.3 million; Market cap: $22.9 billion; Price-to-sales ratio: 0.3; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.adm.com) processes corn, wheat, soybeans, canola, peanuts and other crops into a wide variety of food ingredients, such as flour, oils and sweeteners. The company mainly sells its products to firms that make and process food. It has over 240 processing plants in more than 60 countries. Archer Daniels is also the largest maker of ethanol from corn in the U.S. Ethanol is a gasoline additive that lowers harmful emissions.