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
GENERAL ELECTRIC CO. $20 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.7 billion; Market cap: $214.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.ge.com) is seeing rising demand for its large industrial equipment, such as turbines and locomotives, as the economy recovers. GE’s order backlog is now a record $175 billion. In 2010, GE’s earnings rose 15.4%, to $12.6 billion, or $1.15 a share. It earned $10.9 billion, or $1.00 a share, in 2009. Revenue fell 3.3%, to $150.2 billion from $155.3 billion. However, that’s partly because the company continues to shrink GE Capital, its finance division. GE is a buy.
Ameren and Alliant are Midwestern utilities with long histories of steady dividend payments. We like both, but we prefer Alliant for new buying. That’s because it gets just 5% of its revenue from its unregulated businesses, compared to 25% for Ameren. This makes Alliant less vulnerable to unpredictable weather and volatile fuel prices. AMEREN CORP. $29 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 239.7 million; Market cap: $7.0 billion; Price-to-sales ratio: 0.9; Dividend yield: 5.3%; 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 September 30, 2010, Ameren’s earnings rose 30.6%, to $333 million from $255 million a year earlier. Earnings per share rose 20.7%, to $1.40 from $1.16, on more shares outstanding....
SARA LEE CORP. $19 (New York symbol SLE; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 639.3 million; Market cap: $12.1 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.saralee.com) has gained 58.3% since we first recommended it in the December 2009 Wall Street Stock Forecaster. That’s because the company is focusing on its processed-food operations, and has sold most of its less-profitable household and body-care products businesses. As a smaller company, Sara Lee is reportedly attracting takeover offers. However, Sara Lee may instead spin off its meat and beverage businesses as separate companies. Break-ups like this help unlock hidden value, and generally lead to above-average results for a period of years. Sara Lee is still a buy.
YUM! BRANDS INC. $48 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 468.6 million; Market cap: $22.5 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.1%; TSINetwork Rating: Average; www.yum.com) plans to sell its A&W (hamburgers) and Long John Silver’s (seafood) restaurant chains. Together, these businesses account for about 1% of Yum’s sales. Selling these operations would let Yum focus on its three remaining chains: KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). These brands are easier to expand internationally than A&W and Long John Silver’s, which mainly operate in the U.S. The company feels its international operations will supply 75% of its earnings in 2015, up from 65% in 2010. Yum Brands is a buy....
TERADATA CORP. $44 (New York symbol TDC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 167.5 million; Market cap: $7.4 billion; Price-to-sales ratio: 4.1; No dividends paid; TSINetwork Rating: Average; www.teradata.com) is buying privately held Aprimo, which sells marketing analysis software and services to over 150,000 clients. These products help its clients make better marketing decisions. Teradata is paying $525 million for Aprimo. To put that in context, Teradata earned $75 million, or $0.44 a share, in the three months ended September 30, 2010. The deal should close in the first quarter of 2011. Aprimo uses a cloud-computing model to sell its software. (Cloud computing involves storing data and software on one or more centralized computer networks. Users access these programs or files over the Internet, or through some other computer network.) Aprimo’s expertise will help Teradata as more businesses turn to cloud computing as it cuts their costs....
KRAFT FOODS INC. $31 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.7 billion; Market cap: $52.7 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.kraft.com) is the world’s second-largest food company, after Switzerland-based Nestle. Kraft has 11 brands that each generate over $1 billion in yearly sales. These include Kraft (cheeses, pasta and salad dressings), Philadelphia (cream cheese), Maxwell House (coffee), Nabisco (biscuits), Oreo (cookies) and Oscar Meyer (meats). In April 2010, Kraft paid $18.5 billion in cash and stock for U.K.-based Cadbury plc, a leading maker of chocolate, candy and gum. These products are more profitable than Kraft’s foods, so adding Cadbury should increase Kraft’s long-term earnings....
CINTAS CORP. $29 (www.cintas.com) earned $55.9 million in its fiscal 2011 second quarter, which ended November 30, 2010. That’s down 2.3% from $57.2 million a year earlier. However, earnings per share rose 2.7%, to $0.38 from $0.37, on fewer shares outstanding....
PLEASE NOTE: In next week’s Wall Street Stock Forecaster Hotline, we’ll reveal our #1 U.S. pick for 2011. INTERNATIONAL BUSINESS MACHINES CORP., $155.50, New York symbol IBM, reported better-than-expected earnings this week, thanks to rising demand for its mainframe computers, software and computer services. The company earned $14.8 billion in 2010. That’s up 10.5% from $13.4 billion in 2009. IBM spent $15.4 billion on share buybacks in 2010. Because of fewer shares outstanding, earnings per share rose 15.1%, to $11.52 from $10.01. That beat the consensus earnings estimate of $11.44 a share....
PLEASE NOTE: Next week, Wall Street Stock Forecaster, our newsletter that focuses on the U.S. stock markets, will reveal its #1 pick for 2011. If you’re not already a Wall Street Stock Forecaster subscriber, click here to learn how you can get one month — including the Wall Street Stock Forecaster Stock of the Year —FREE. AMAZON.COM INC., $177.42, symbol AMZN on Nasdaq, has agreed to pay $320 million for the 58% of privately held Lovefilm International Ltd. that it didn’t already own. Amazon.com took a minority stake in U.K.-based Lovefilm after it sold its DVD rental business in the U.K. and Germany to Lovefilm in 2008....
WESTJET AIRLINES $14.10 (Toronto symbol WJA; TSINetwork Rating: Extra Risk) (1-877-493-7853; www.westjet.com; Shares outstanding: 139.8 million; Market cap: $2.0 billion; Dividend yield 1.4%) has gained 4.8% since we recommended it as our #1 stock pick for 2010 in January 2010. We liked the stock then, and that was before this year’s ticketing and baggage-transfer alliances with other airlines, including Cathay Pacific, British Airways and American Airlines. This lets it reach new markets, while limiting risk. WestJet also invested heavily in a state-of-the-art computer reservation system over the last year. We think the WestJet is just getting started, and its biggest gains still lie ahead. The company’s fleet of 90 fuel-efficient Boeing Next-Generation 737s serve 71 destinations in North America and the Caribbean. WestJet has 45 more of these planes on order through 2017....