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
Commodities like gold and copper provide a hedge against inflation. But even if inflation stays low, commodity prices are likely to keep rising as rapid economic growth in Asia and South America spurs new construction and car sales. That will help BHP, Newmont and Alcoa. All three are high-quality, well-established resource stocks that have jumped lately. Still, we see only two as buys right now. BHP BILLITON LTD. ADRs $89 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $249.2 billion; Price-to-sales ratio: 4.7; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bhpbilliton.com) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. Regulators in Australia and Canada have recently forced the company to cancel two big deals....
PHILIPS ELECTRONICS N.V. ADRs $30 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 946.0 million; Market cap: $28.4 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.0%; TSINetwork Rating: Average; www.philips.com) earned 0.55 euros per ADR in the three months ended September 30, 2010 (1 euro = $1.32 U.S.; each American Depositary Receipt represents one Philips common share.) That’s up 189.5% from 0.19 euros per ADR a year earlier. Sales rose 9.6%, to 6.2 billion euros from 5.6 billion euros. Philips had fewer restructuring and other unusual costs in the latest quarter. As well, all three of its businesses reported strong earnings gains: lighting (up 173.4%), health-care equipment (up 61.1%) and consumer products, such as TV sets (up 15.5%). Philips is a buy.
WAL-MART STORES INC. $54 (New York symbol WMT; Conservative Growth Portfolio: Consumer sector; Shares outstanding: 3.6 billion; Market cap: $194.4 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.2%; TSINetwork Rating: Above Average; www.walmart.com) is buying 51% of South Africa’s Massmart Holdings Ltd., which operates 288 department stores in 14 African countries. In September 2010, the company made a non-binding offer to buy all of Massmart. That gave Wal-Mart a chance to examine Massmart’s accounts before making a formal offer. Based on current exchange rates, Wal-Mart’s offer is worth roughly $2 billion. Wal-Mart held cash of $10.6 billion, or $2.96 a share, on October 31, 2010, so it can easily afford this purchase. Expanding internationally helps Wal-Mart offset slowing growth in the U.S. As well, the company’s retail expertise will make Massmart more profitable, and expand its market share as the South African economy recovers from the recession....
It has been a year since the old EnCana split itself into two new companies: the new Encana focuses on unconventional natural gas, and Cenovus Energy specializes in oil-sands projects. Encana is down slightly since the breakup, due to low natural-gas prices. However, Cenovus has gained 20%. We continue to see both stocks as buys for long-term gains. ENCANA CORP. $28 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.3 million; Market cap: $20.6 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.9%; TSINetwork Rating: Average; www.encana.com) is a leading North American natural-gas producer. It focuses on unconventional reserves, such as shale-gas deposits. (Shale gas is natural gas that is trapped in rock formations.)...
WEYERHAEUSER CO. $18 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 535.9 million; Market cap: $9.6 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.3%; TSINetwork Rating: Extra Risk; www.weyerhaeuser.com) will convert to a real estate investment trust in 2011. That will lower the tax it must pay on its six million acres of timberland. Following the conversion, Weyerhaeuser will pay a quarterly dividend of $0.15 a share, for a 3.3% annual yield. However, weak demand for new houses will continue to hurt lumber sales. Weyerhaeuser is a hold.
AT&T will probably lose its exclusive right to carry Apple’s popular iPhone when the contract expires in 2011. However, in countries where there is more than one iPhone carrier, the original carrier usually hangs on to most of its customers. We feel that rising demand for smartphones, including the iPhone, will continue to benefit both AT&T and Verizon. AT&T INC. $29 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 5.9 billion; Market cap: $171.1 billion; Price-to-sales ratio: 1.4; Dividend yield: 5.8%; TSINetwork Rating: Average; www.att.com) gets 48% of its revenue from its wireless division, which has 92.8 million customers nationwide. The company’s traditional telephone operations, which serve 43.7 million consumers and businesses in 22 states, account for 47% of its revenue and earnings. The remaining 5% comes from other operations, such as selling ads in telephone directories. AT&T sold a record 5.2 million iPhones in the third quarter of 2010. That’s up 61.6% from the second quarter. About 24% of these users are new customers for AT&T....
FRONTIER COMMUNICATIONS CORP. $9.33 (New York symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 993.9 million; Market cap: $9.3 billion; Price-to-sales ratio: 1.5; Dividend yield: 8.0%; TSINetwork Rating: Average; www.frontier.com) sells traditional telephone and high-speed Internet services to 5.6 million customers in 27 states. In July 2010, Frontier acquired Verizon’s traditional phone operations in 14 states in an all-stock deal. As a result, Verizon investors now own 68% of Frontier. The stock is up 34% since the merger. It now trades at 19.2 times Frontier’s forecast 2010 earnings of $0.49 a share. That’s a high p/e ratio for a telephone company with no wireless operations. However, the $0.75 dividend seems safe, and yields 8.0%....
WESTERN UNION CO. $19 (New York symbol WU; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 655.9 million; Market cap: $12.5 billion; Price-to-sales ratio: 2.5; Dividend yield: 1.5%; TSINetwork Rating: Above Average; www.westernunion.com) provides money-transfer and foreign-exchange services in over 200 countries. Demand for money transfers continues to rise as the global economy recovers. As a result, Western Union’s cash flow should be around $1 billion for all of 2010. That gives it plenty of room to keep buying back shares; it spent $511.2 million on share repurchases in the first nine months of 2010. (Share buybacks increase per-share earnings and give the remaining shareholders a larger stake in the company.) Western Union recently raised its quarterly dividend by 16.7%, to $0.07 a share from $0.06. The new annual rate of $0.28 yields 1.5%....
NEXTERA ENERGY INC. $51 (New York symbol NEE; Income Portfolio, Utilities sector; Shares outstanding: 418.4 million; Market cap: $21.3 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.9%; TSINetwork Rating: Average; www.nexteraenergy.com) is paying First Solar Inc. (Nasdaq symbol FSLR) an undisclosed sum for four solar-power projects in Ontario. These projects should begin producing electricity in the first quarter of 2011. Solar and wind-power projects are heavily reliant on government subsidies. Governments will likely cut these subsidies as they look for ways to deal with their ballooning budget deficits. Moreover, NextEra gets 70% of its revenue from Florida Power and Light Co., a regulated utility with 4.5 million customers in Florida. This high reliance on a slow-growing state, plus the potential for major hurricane damage, limits NextEra’s appeal....
GENUINE PARTS CO. $51 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing sector; Shares outstanding: 157.5 million; Market cap: $8.0 billion; Price-to-sales ratio: 0.7; Dividend yield: 3.2%; TSINetwork Rating: Average; www.genpt.com) distributes auto parts to over 4,800 independent stores in North America. The company also operates about 1,000 auto parts stores under the NAPA banner. Auto parts account for roughly 50% of its sales, and 55% of its earnings. The company also distributes industrial parts (30% of sales, 30% of earnings), office furniture (15%, 10%), and electrical equipment (5%, 5%). Genuine Parts’ exposure to a variety of businesses helps protect it from slowdowns in certain industries.