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
RUSSEL METALS $20.84 (Toronto symbol RUS; SI Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 59.7 million; Market cap: $1.2 billion; Dividend yield: 4.8%) is one of North America’s largest metal distributors. Russel serves its roughly 30,000 customers through a network of 50 Canadian and 12 U.S. locations. In the three months ended June 30, 2010, Russel reported earnings per share of $0.31 before one-time items. That’s a big improvement over the $0.10 a share it earned a year earlier. Revenue rose 9.4%, to $506.1 million from $462.5 million.
Cost cuts continue to boost earnings
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ADOBE SYSTEMS INC., $26.99, Nasdaq symbol ADBE, jumped as high as $28.90 a share this week on reports that MICROSOFT CORP., $24.24, Nasdaq symbol MSFT, may launch a takeover offer for the company. A merger could help Microsoft compete in the fast-growing field of software for smartphones. Right now, Apple’s iPhone and phones powered by the free Android system, which is made by Internet-search provider Google Inc., dominate this market. Microsoft hopes to improve its market share with its upcoming Windows Phone 7 operating system. Adding Adobe’s Flash video software could give Windows Phone 7 an advantage over Apple and Android phones. As well, Adobe’s products could help Microsoft develop new software for touch-screen tablet computers....
FORTRESS PAPER, $42.27, symbol FTP on Toronto, has entered into agreements to supply dissolving pulp to two companies that make rayon products in China. Dissolving pulp is a type of cellulose mainly used in products made of rayon, including clothing. This fibre has strong growth prospects, particularly in warmer regions with growing economies, such as Asia and South America. Fortress will begin supplying dissolving pulp from its specialty cellulose mill in Quebec in the third quarter of 2011. This mill, which should start up in mid-2011, is expected to be able to produce more than 200,000 air-dried metric tons of dissolving pulp per year....
WAL-MART STORES INC., $53.36, New York symbol WMT, has made a non-binding offer to buy South Africa’s Massmart Holdings Ltd., which operates 290 department stores in 13 African countries. Based on current exchange rates, Wal-Mart’s offer is worth $4.1 billion. However, the company will examine Massmart’s accounts before it makes a formal bid. Any deal would require the approval of Massmart’s shareholders. Wal-Mart can easily afford this purchase: on July 31, 2010, the company held cash of $10.2 billion, or $2.79 a share....
ALIMENTATION COUCHE-TARD INC., $22.47, symbol ATD.B on Toronto, has dropped its $2-billion U.S. hostile takeover bid for Casey’s General Stores (symbol CASY on Nasdaq). Couche-Tard allowed its tender offer for all of Casey’s outstanding shares to expire at 5:00 p.m. on September 30. Couche-Tard, which was offering $38.50 U.S. a share, decided not to compete with convenience-store chain 7-Eleven’s offer of $40 a share, or $2.1 billion. Casey’s now trades at $41.37, which suggests that investors expect a still higher offer, even though Couche-Tard has dropped out of the bidding. Even without the takeover, we still like Couche-Tard’s growth prospects. Meanwhile, the company has enhanced its reputation as a disciplined bidder that does not overpay for acquisitions....
ADOBE SYSTEMS INC., $26.88, Nasdaq symbol ADBE, reported record-high quarterly revenue and stronger-than-expected earnings this week. However, the software maker warned that its earnings in the current quarter will be hurt by slowing sales of its Creative Suite 5 software package to U.S. schools. The weak Japanese economy is also hurting demand for this product. The warning caused the stock to fall 19%. Creative Suite 5, which accounts for about 55% of Adobe’s revenue, is a package of photo-editing and desktop-publishing programs....
BAFFINLAND IRON MINES, $1.03, symbol BIM on Toronto, is the subject of a hostile, $274.3-million takeover offer from Nunavut Iron Ore Acquisition Inc., which is wholly owned by privately held Iron Ore Holdings, LP. Nunavut is offering $0.80 in cash for each share of Baffinland. The company currently owns about 6% of Baffinland. Other shareholders who hold a combined 9.3% stake in Baffinland have also agreed to tender their shares to the offer. Baffinland is now trading at $1.03, or 28.8% above Nunavut’s bid. This indicates that investors expect a much higher bid from Nunavut or another buyer....
Beckman Coulter has suffered lately, mostly because of problems with a test kit that determines whether a patient has suffered a heart attack. Beckman recalled the test kit, which accounted for about 2% of its 2009 sales, earlier this year. The company 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 next year. The company also faces other challenges. A number of smaller pharmaceutical firms have been taken over by larger companies. That gives Beckman fewer potential customers. As well, the company’s chief executive officer recently resigned. That adds further uncertainty. We feel Beckman’s aggressive response to its quality problems will limit any long-term damage to its reputation. As well, despite the bad news, the company sold more lab equipment in the U.S. in its latest quarter, and is seeing strong growth overseas. Each new sale gives Beckman a new customer for its supplies and maintenance services. Sales of supplies now account for over 80% of the company’s revenue. That helps cut its risk....
BAXTER INTERNATIONAL INC. $48 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 584.4 million; Market cap: $28.1 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.4%; WSSF Rating: Average) gets over half of its revenue from medical products that can only be used once. Like Beckman, this gives it steady revenue streams. As well, Baxter’s wide range of products limits its reliance on a single product or region. It has three divisions: BioScience (about 44% of 2009 sales), makes vaccines and drugs; Medical Delivery (37%) makes intravenous equipment; and Renal (18%) makes dialysis equipment. These strengths will help Baxter overcome several challenges. For example, the weak economy is prompting hospitals to switch to cheaper alternatives to Baxter’s products. The company has cut its prices in response. As well, Baxter is recalling its Colleague infusion pumps because of a defect that could cause patients to receive too much medication. It will replace these pumps with newer models, or offer refunds....
High unemployment continues to hold back consumer spending in the U.S. As well, many households are using their extra cash to pay down debt. Even so, demand for electronic devices, particularly smartphones and video-game players, continues to rise. That’s good news for these four leading makers of consumer-electronic products. All four have launched new devices in time for Christmas. Their new products are also helping them increase sales in emerging markets. Still, we see only three as buys right now. APPLE INC. $288 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 913.6 million; Market cap: $263.1 billion; Price-to-sales ratio: 4.6; No dividend paid; WSSF Rating: Average) makes computers and a variety of other electronic devices....