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.
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Growth Stocks Library Archives
TIM HORTONS INC. $37 (New York symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 173.9 million; Market cap: $6.4 billion; Price-to-sales ratio: 2.7; Dividend yield: 1.4%; WSSF Rating: Average) is selling half of its Maidstone Bakeries business to Aryzta AG of Switzerland. (Tim Hortons and Aryzta own the bakery through a joint venture.) Based in Brantford, Ontario, Maidstone supplies donuts and other baked goods to Tim Hortons’stores in Canada and the U.S. Tim Hortons will receive $475 million when the sale closes on October 29, 2010 (all amounts except share price and market cap in Canadian dollars). As part of the deal, Maidstone will continue to supply Tim Hortons until 2016. The company could use the proceeds to pay a special dividend, or buy back a large number of shares. Buybacks boost per-share earnings, and give remaining shareholders a larger stake in the company....
MCDONALD’S CORP. $77 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.1 billion; Market cap: $84.7 billion; Price-to-sales ratio: 3.5; Dividend yield: 3.2%; WSSF Rating: Above Average) continues to profit from strong demand for its premium coffees and low-cost meals. In the three months ended September 30, 2010, sales rose 4.3%, to $6.3 billion from $6.0 billion a year earlier. Overall same-store sales rose 6.0%, with the Asia-Pacific region up 8.1%, the U.S. up 5.3% and Europe up 4.1%. Earnings rose 10.1%, to $1.4 billion from $1.3 billion. Earnings per share rose 12.2%, to $1.29 from $1.15, on fewer shares outstanding. Thanks to its strong outlook, McDonald’s has raised its quarterly dividend by 10.9%, to $0.61 a share from $0.55. The new annual rate of $2.44 yields 3.2%....
SNAP-ON INC. $50 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.2 million; Market cap: $2.9 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.4%; WSSF Rating: Average) makes hand and power tools for auto mechanics. It sells its tools through a fleet of franchised vans that visit garages. This method lets Snap-On build closer relationships with its customers, which gives it an edge over its competitors. It also keeps Snap-On’s distribution costs down. New markets have huge potential The company aims to cut its exposure to the cyclical car market. To that end, it is diversifying its operations, including making specialized tools for mining companies, electrical power generators and other industrial customers. Snap-On is also expanding in China, India and other fast-growing markets, where rising prosperity is fuelling demand for new cars....
IDEXX LABORATORIES INC. $60 makes equipment that veterinarians use to detect diseases in animals. Idexx earned $0.59 a share in the three months ended September 30, 2010. That’s up 13.5% from $0.52 a year earlier. Revenue rose 4.1%, to $269.6 million from $259.1 million. However, the uncertain economy could lead to fewer vet visits by cash-strapped pet owners. Hold. NCR CORP. $14 continues to profit from strong demand for its automated-teller machines in Europe and Asia. In the three months ended September 30, 2010, revenue rose 6.3%, to $1.2 billion from $1.1 billion a year earlier. Excluding a one-time tax gain, earnings per share jumped 24.3%, to $0.46 from $0.37. Buy. TEXAS INSTRUMENTS INC. $29 has opened its first plant in China. This facility will help the company meet rising demand from Asian manufacturers for its analog chips. These chips convert analog-signal information, such as sound, into digital code that a computer can understand. Best Buy.
INTERNATIONAL BUSINESS MACHINES CORP., $139.67, New York symbol IBM, reported better-than-expected earnings this week, thanks to rising demand for its mainframe computers, software and computer services. In the three months ended September 30, 2010, IBM’s earnings rose 11.7%, to $3.6 billion from $3.2 billion a year earlier. Earnings per share rose 17.5%, to $2.82 from $2.40, on fewer shares outstanding. The latest earnings beat the consensus earnings estimate of $2.76 a share. Revenue rose 3.0% in the quarter, to $24.3 billion from $23.6 billion. That was just above the consensus revenue estimate of $24.2 billion. IBM gets about two-thirds of its revenue from overseas customers. If you exclude the negative impact of currency exchange rates, revenue would have risen 4%....
20-20 TECHNOLOGIES INC., $4.00, symbol TWT on Toronto, makes computer-aided design, sales, engineering and manufacturing software for clients in the interior-design and furniture industries. The company has customers in 100 countries, and markets software in 23 languages. The stock jumped 10% this week after a group of 20-20 shareholders led by U.S.-based private equity firm Crescendo Partners requested a special shareholders’ meeting. Together, these investors control 16% of 20-20’s shares. They have said that they want to replace three of the company’s 10 directors with their own nominees. 20-20 has not yet responded to the request....
INTEL CORP., $19.32, Nasdaq symbol INTC, reported better-than-expected earnings and record revenue this week. Even so, the stock fell 2%. That’s because investors fear that weak consumer confidence will hurt computer sales during the important Christmas shopping season. In the three months ended September 25, 2010, the chipmaker’s earnings jumped 59.2%, to $3.0 billion from $1.9 billion a year earlier. Earnings per share rose 57.6%, to $0.52 from $0.33, on more shares outstanding. That beat the consensus earnings estimate of $0.50 a share. Revenue rose 18.2%, to $11.1 billion from $9.4 billion. The gains were mainly due to strong computer demand from businesses. That offset weaker demand from consumers. Intel spent $1.7 billion (or 15.1% of its revenue) on research in the latest quarter. That’s up 17.1% from $1.4 billion (or 15.2% of revenue) a year earlier. The company’s high research spending weighs on its earnings, because it must immediately write off these costs. However, this spending is giving Intel a steady stream of new products to fuel its growth....
CHESAPEAKE ENERGY CORP., $22.99, symbol CHK on New York, has agreed to sell a third of its wholly owned Eagle Ford shale-gas project in south Texas to Chinese state-owned oil company CNOOC Ltd. (symbol CEO on New York). Shale gas is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas. CNOOC will pay Chesapeake $1.08 billion for the Eagle Ford stake when the sale closes by the end of 2010. As well, CNOOC will pay up to 75% of Chesapeake’s share of the development costs, up to an additional $1.08 billion. To put these figures in context, Chesapeake earned $491 million, or $0.75 a share, before unusual items in the three months ended June 30, 2010....
HECLA MINING COMPANY $6.93 (New York symbol HL; SI Rating: Extra Risk) (208-769-4100; www.hecla-mining.com; Shares outstanding: 256.1 million; Market cap: $1.8 billion) explores for, mines and processes silver and gold in the U.S. and Mexico. Hecla expects to produce between 10 million and 11 million ounces of silver this year. This will mostly come from the Greens Creek mine in Alaska, and Hecla’s Lucky Friday mine in Idaho. In the three months ended June 30, 2010, Hecla’s revenue rose 18.8%, to $88.6 million from $74.6 million a year earlier. Higher silver prices and lower costs were the main reasons for the gain. The company earned $0.06 a share, compared to nil per a share. Cash flow per share rose 45.5%, to $0.16 from $0.11....
Another one of our buys — Baffinland Iron Mines — has attracted a takeover bid. Investors often ask how we have managed to recommend so many stocks over the years that get taken over. One key is that we aim to recommend stocks with hidden assets — assets that attract less investor attention than they deserve. That gives buyers a bargain. It also attracts takeover bids. While not a widely followed stock, Baffinland has huge reserves of ore so pure at 65% iron that the only on-site processing it will need is crushing and screening. As well, the company has already signed contracts to sell the ore to steelmaking giants Thyssen-Krupp and ArcelorMittal. Baffinland also holds $25 million in cash to fund exploration and development....