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
BECKMAN COULTER INC., $53.24, New York symbol BEC, makes lab equipment that doctors and medical researchers use to detect substances in blood and other bodily fluids. The stock fell to $43.95 on September 7, 2010, due to problems with a test kit that determines whether a patient has suffered a heart attack. This test kit accounted for about 2% of Beckman’s 2009 sales. The company recalled the kit, and is now working with the U.S. Food and Drug Administration to fix the problem. Beckman plans to begin clinical trials of the upgraded test kit in 2011....
FIRSTSERVICE CORP. $26, symbol FSV on Toronto, serves the following areas of the real-estate market: commercial real estate; residential property management; and property improvement. The company’s revenue rose 17.6% in the three months ended September 30, 2010, to $530.4 million from $451.1 million a year earlier. (All figures except share price in U.S. dollars.) FirstService’s property-services revenue rose 5% in the latest quarter, to $126.1 million. Residential property-management revenue rose 4%, to $181.6 million. The commercial real-estate division’s revenue showed the biggest gain, rising 43%, to $222.7 million....
A key part of our three-part investment approach is to stick with well-established, dividend-paying companies. (The other two parts are to spread your money out across the five main economic sectors, and downplay stocks in the broker/public-relations limelight.) Most well-established companies have built up strong reputations that can help them overcome the inevitable downturns. Their trusted brands also make it easier for them to launch new products, or expand into new markets. Heinz and Campbell Soup are two good examples. Both companies began operating in 1869. Together, they own some of the best-known brands in the food industry. Their strong brands are helping them enter fast-growing markets, such as China, India and Russia. As well, both companies are introducing healthier products to spur sales in developed countries....
Heinz and Campbell Soup no doubt hope they have as much success expanding in China as Yum Brands and PepsiCo: YUM! BRANDS INC. $49 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 468.6 million; Market cap: $23.0 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.0%; WSSF Rating: Above Average) was the first fast-food company to enter China (in 1987). China now supplies 40% of Yum’s sales, and 45% of its earnings. Thanks to strong sales growth in China, Yum’s 2010 earnings should rise 15.2%, to $2.50 a share. The stock trades at 19.6 times that estimate....
Clothing sales are rising as the economy continues to recover. However, fashion trends are fickle, and consumers are often quick to switch brands. The six clothing designers and sellers we analyze below own some of the top brand names in the industry. That will help them keep increasing their sales. As well, all six cut costs during the recession. That will let them lower their prices and protect their market shares if sales slow. Still, only three are buys. LIMITED BRANDS INC. $29 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 322.8 million; Market cap: $9.4 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.1%; WSSF Rating: Average) operates two main retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (soaps and bath oils). It also operates the La Senza lingerie chain in Canada and 30 other countries....
TOYOTA MOTOR CO. ADRs $71 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.6 billion; Market cap: $113.6 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.4%; WSSF Rating: Above Average) is recalling 1.5 million vehicles to fix a brake problem: a seal could dry out and leak if owners use an unapproved brand of brake fluid. Over time, that could make the car harder to stop. This is much less serious than the sticky gas-pedal and floor-mat problems that forced the company to recall 8.5 million cars and trucks earlier this year. Toyota’s quick response to these latest problems should continue to limit any long-term damage to its reputation. Toyota is a buy.
GENERAL ELECTRIC CO. $16 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.7 billion; Market cap: $171.2 billion; Price-to-sales ratio: 1.1; Dividend yield: 3.0%; WSSF Rating: Above Average) is buying California-based Clarient Inc. (Nasdaq symbol CLRT). Clarient’s advanced technology helps identify genes and other markers in cancer cells. This helps doctors tailor their treatments to individual patients. Demand for accurate cancer diagnoses is rising, and Clarient will help strengthen GE’s health-care operations, which supply about 25% of its revenue. The $580-million price is just 18% of the $3.2 billion, or $0.29 a share, that GE earned in the three months ended September 30, 2010. GE aims to close the deal by the end of this year. GE is a buy.
UNITED TECHNOLOGIES CORP. $74 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 923.4 million; Market cap: $68.3 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.3%; WSSF Rating: Above Average) is buying the 51.1% of U.K.-based Clipper Windpower PLC that it doesn’t already own. Clipper makes turbines and other equipment for wind-power projects. Low natural-gas prices have cut the cost of producing electricity. As well, cash-strapped governments are cutting subsidies to wind producers. However, the Clipper acquisition will only cost United Technologies $112 million. To put this amount in context, the company earned $1.2 billion, or $1.30 a share, in the three months ended September 30, 2010....
STATE STREET CORP. $41 (New York symbol STT; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 501.9 million; Market cap: $20.6 billion; Price-to-sales ratio: 2.2; Dividend yield: 0.1%; WSSF Rating: Extra Risk) provides accounting and other services to mutual funds and pension plans. In the three months ended September 30, 2010, State Street earned $1.08 a share. That’s up 63.6% from $0.66 a year earlier. If you exclude unusual items, such as gains on sales of securities State Street had previously written down, earnings per share would have risen 21.1%, to $0.86 from $0.71. Revenue rose 8.4%, to $2.2 billion from $2.0 billion. In 2009, State Street bought two firms in Europe. That pushed up the company’s custody-fee revenue by 18.7% in the latest quarter. However, despite rising stock markets, fees from managing its clients’investments fell 2.7%. That’s because its customers held more bonds during the quarter, and the company earns lower fees from managing bonds than stocks....
WESTERN UNION CO. $18 (New York symbol WU; Conservative Growth Portfolio, Finance sector; Shares outstanding: 656.2 million; Market cap: $11.8 billion; Price-to-sales ratio: 2.4; Dividend yield: 1.3%; WSSF Rating: Above Average) earned $0.38 a share in the three months ended September 30, 2010. That’s up 15.2% from $0.33 a year earlier. The latest results exclude costs to reorganize Western Union’s money transfer and payments business. This plan cut the company’s expenses by 5% in the latest quarter. Revenue rose 1.3%, to $1.33 billion from $1.31 billion. The company should earn $1.38 a share in 2010. The stock trades at 13.0 times that figure. Western Union is a buy.