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
AMAZON.COM INC., $177.24, symbol AMZN on Nasdaq, will now offer free streaming of movies and TV shows to its Amazon Prime members. These are customers who pay $79 a year to get unlimited two-day shipping from Amazon with no minimum purchase requirements. The company will offer Prime members more than 5,000 movies and TV shows. Netflix (New York symbol NFLX), Amazon’s rival in the Internet movie market, offers about 30,000 movies and TV shows for $96 a year. Amazon’s new service will benefit the company in a number of ways: It will reward Prime members. As well, it will draw attention to the company’s movie and TV-show downloading service, Amazon Instant Video, which lets customers buy or rent more than 90,000 commercial-free movies and TV shows (with prices of up to $3.99 for new releases)....
Expanding through acquisitions is riskier than internal growth. However, some companies have a strong history of buying and integrating new businesses, and making them more profitable. A top example is Stanley, which has spent over $3.0 billion on acquisitions since 2002, not including last year’s $4.7-billion, all-stock purchase of rival toolmaker Black & Decker....
We focus on oil companies with large reserves that generate dependable cash flows. We also prefer stocks that mainly operate in politically stable areas, particularly North America. This approach has paid off, as two of our favourite oil stocks have largely escaped the current turmoil in the Middle East. CHEVRON CORP. $102 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $204.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.chevron.com) began exploring for oil in Libya in 2005, after the U.S. dropped its economic sanctions on the country. However, its discoveries were too small to justify further investments. As a result, Chevron let its five-year exploration licenses expire last year....
These consumer-product makers continue to face strong competition from cheaper generic brands. However, all three are doing a good job of cutting costs and expanding internationally. Even so, only two are buys right now. PROCTER & GAMBLE CO. $64 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.8 billion; Market cap: $179.2 billion; Price-to-sales ratio: 2.3; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.pg.com) is one of the world’s largest makers of household and personal-care products. Some of its top brands are Tide detergent, Crest toothpaste, Head & Shoulders shampoo and Pampers diapers. The company gets 60% of its sales from outside the U.S. Procter is streamlining its business. That includes dropping some less-profitable brands and cutting a third of its suppliers. These moves should free up more cash for advertising and marketing. As well, lower costs will give Procter more flexibility to cut its prices without hurting its profit margins....
XEROX CORP. $11 (New York symbol XRX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.4 billion; Market cap: $15.4 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.5%; TSINetwork Rating: Average; www.xerox.com) makes copiers, laser printers and other publishing equipment. In February 2010, Xerox paid $6.5 billion for Affiliated Computer Services Inc. (ACS), which sells computer-outsourcing services. Xerox now gets over 60% of its revenue from long-term service contracts and recurring payments for supplies. That cuts its risk. Thanks to ACS, Xerox’s earnings rose 111.4% in 2010, to $1.3 billion from $613 million in 2009. Earnings per share rose 34.3%, to $0.94 from $0.70, on more shares outstanding. These figures exclude unusual items, such as merger costs. If you assume Xerox bought ACS at the start of 2009, its revenue would have risen 2.6% in 2010, to $21.6 billion from $21.1 billion....
LA-Z-BOY INC. $10 (New York symbol LZB; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 51.9 million; Market cap: $519.0 million; Price-to-sales ratio: 0.5; No dividends paid since March 2009; TSINetwork Rating: Speculative; www.la-z-boy.com) makes reclining chairs and other furniture. The company’s aggressive cost cutting, which included laying off 25% of its workforce, shifting production to low-cost countries and closing unprofitable stores, is starting to pay off. In the three months ended January 22, 2011, earnings per share before unusual items fell 29.4%, to $0.12 from $0.17 a year earlier. Even so, the latest results beat the consensus estimate of $0.10 a share. Sales fell 4.3%, to $291.9 million from $305.1 million. La-Z-Boy is a hold.
New regulations in the wake of the financial crisis will push up costs for these three leading credit-rating providers. However, they face little competition, and they continue to benefit from falling computer costs and the shift to electronic document delivery. These savings are also letting them raise their dividends. MCGRAW-HILL COMPANIES INC. $38 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 307.0 million; Market cap: $11.7 billion; Price-to-sales ratio: 1.9; Dividend yield: 2.6%; TSINetwork Rating: Average; www.mcgraw-hill.com) gets 70% of its earnings and 45% of its revenue from its Standard & Poor’s division, which provides financial information, including credit ratings on bonds. The company also publishes textbooks and magazines, and owns nine television stations. In 2010, McGraw-Hill’s revenue rose 3.6%, to $6.2 billion from $6.0 billion. Revenue from Standard & Poor’s rose 8.3%, as businesses took advantage of low interest rates to issue more bonds. The textbook division’s revenue rose 1.9%, thanks to higher college enrolment and rising demand for electronic versions of its books. That offset slower demand for new elementary and high-school textbooks....
BHP BILLITON LTD. ADRs $92 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $257.6 billion; Price-to-sales ratio: 3.9; Dividend yield: 1.9%; TSINetwork Rating: Average; www.bhpbilliton.com) makes most of its money from mining iron ore, coal and aluminum. The company now wants to raise its oil and natural gas output by 40% over the next five years. To that end, BHP is buying natural-gas properties in Arkansas from Chesapeake Energy Corp. (New York symbol CHK) for $4.75 billion. The deal should close in sometime in mid-2011. BHP held cash of $16.6 billion, or $5.98 per ADR, on December 31, 2010, so it can easily afford this purchase. Still, low gas prices will probably hurt its profits from these new properties over the next few years. BHP Billiton is a hold.
SONY CORP. ADRs $36 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $36.0 billion; Price-to-sales ratio: 0.4; Dividend yield: 0.8%; TSINetwork Rating: Average; www.sony.net) aims to profit from rising smartphone demand with the Xperia Play, a new phone that lets users download and play video games from Sony’s PlayStation Network. Users will be able to access over 200,000 programs through the Xperia Play, which uses the popular Google Android operating system. Sony’s strong reputation in video games should help this new device compete with Apple’s iPhone. Sony is a buy.
FORD MOTOR CO. $15 (New York symbol F; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 3.6 billion; Market cap: $54.0 billion; Price-to-sales ratio: 0.4; No dividends paid since June 2006; TSINetwork Rating: Speculative; www.ford.com) has agreed to form a 50/50 joint venture with Russian carmaker Sollers. This new business should start making passenger cars and light commercial vehicles in Russia under the Ford brand by the end of 2011. Ford first started making cars in Russia in 2002. This experience should cut the risk of this deal. As well, Sollers’ distribution networks should help Ford quickly increase its market share in the country. Ford is a buy....