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
3M COMPANY $87 (New York symbol MMM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 713.1 million; Market cap: $62.0 billion; Price-to-sales ratio: 2.5; Dividend yield: 2.4%; WSSF Rating: Above Average) is taking advantage of the slow economy to buy other, related firms. So far in 2010, it has made eight purchases. The company usually buys smaller companies that it can easily absorb. 3M’s latest purchase is privately held Arizant Inc. This Minnesota-based company makes specialized electric blankets that help prevent infections in hypothermia patients. Arizant’s blankets look like a nice fit with 3M’s other hospital-related products. The $810-million price is equal to 72% of the $1.1 billion, or $1.54 a share, that 3M earned in the second quarter of 2010....
TEXAS INSTRUMENTS INC. $25 (New York symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.2 billion; Market cap: $30.0 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.1%; WSSF Rating: Average) plans to buy back $7.5 billion of its shares. That’s in addition to the $1.3 billion still outstanding under its current buyback plan. There’s no time limit to these repurchases. The company also raised its quarterly dividend by 8.3%, to $0.13 a share from $0.12. The new annual rate of $0.52 yields 2.1%. Texas Instruments is a buy.
NVIDIA CORP. $11 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 574.0 million; Market cap: $6.3 billion; Price-to-sales ratio: 1.7; No dividends paid; WSSF Rating: Average) should also benefit from rising demand for consumer electronics. That’s because it is a leading designer of 3D-capable video chips for computers and other devices. These chips make video games run more smoothly, and appear more life-like. Nvidia outsources most of its production to chipmakers in Asia. Computer sales have been strong in the past few months, but more consumers are opting for machines with cheaper, integrated video chips instead of Nvidia’s video cards. Weaker demand in Europe and China is also weighing on Nvidia’s sales. As well, Apple is using video chips made by rival Advanced Micro Devices Inc. in its new Mac desktop computers. In its second quarter, which ended August 1, 2010, Nvidia lost $141.0 million, or $0.25 a share. One-time items, including warranty payments related to defective chips, were the main reason for the loss. Excluding all unusual items, Nvidia would have earned $20.1 million in the latest quarter, up 88.4% from $10.7 million a year earlier. On that basis, earnings per share rose 50.0%, to $0.03 from $0.02, on more shares outstanding. Sales rose 4.5%, to $811.2 million from $776.5 million....
Rising incomes in developing countries are fuelling demand for high-quality alcoholic beverages. That’s good news for Diageo and Molson Coors. Both companies are using their well-known brands to increase their sales outside North America and Europe. DIAGEO PLC ADRs $69 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 626.4 million; Market cap: $43.2 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.4%; WSSF Rating: Above Average) is the world’s largest premium alcoholic beverage company. Its top brands include Guinness stout, Smirnoff vodka, Johnnie Walker scotch whisky and Captain Morgan rum. In its latest fiscal year, which ended June 30, 2010, Diageo’s sales rose 5.0%, to 9.8 billion pounds from 9.3 billion pounds in the prior year (1 British pound = $1.61 Canadian). Overall sales volumes rose 2%. Volumes fell 2% in North America, but that was more than offset by a 1% gain in Europe, a 2% rise in the Asia-Pacific region and an 8% jump in other markets....
ABB LTD. ADRs $21 (New York symbol ABB; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 2.3 billion; Market cap: $48.3 billion; Price-to-sales ratio: 1.5; Dividend yield: 2.3%; WSSF Rating: Above Average) earned $623 million in the three months ended June 30, 2010, down 7.7% from $675 million a year earlier. Earnings per ADR fell 10.0%, to $0.27 from $0.30, on more shares outstanding. (Each American Depositary Receipt represents one ABB common share.) Restructuring costs and investment losses were the main reasons for the drop. Orders for new equipment rose 4.9%, to $7.7 billion from $7.3 billion, as strong sales of automated factory machinery offset slower demand for power-transmission equipment. ABB is a buy.
SARA LEE CORP. $14 (New York symbol SLE; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 662.2 million; Market cap: $9.3 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.1%; WSSF Rating: Above Average) should complete the sales of its remaining personal-care and household-product businesses by the end of 2010. Selling these operations will let Sara Lee focus on its more profitable food businesses, including making coffee, frozen bakery products and processed meats. Sara Lee will use the cash from these sales to buy back $2.5 billion to $3.0 billion of its shares over the next three years. The company’s plan to improve its productivity should also cut its annual costs by $350 million to $400 million by June 2012. Excluding unusual items, Sara Lee earned $746 million, or $1.08 a share, in the year ended July 3, 2010. Sara Lee is a buy....
APACHE CORP. $95 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 364.3 million; Market cap: $34.6 billion; Price-to-sales ratio: 3.1; Dividend yield: 0.6%; WSSF Rating: Average) still plans to go ahead with its purchase of Mariner Energy Inc. (New York symbol ME), despite an explosion at one of Mariner’s offshore oil rigs in the Gulf of Mexico. The company is paying $2.7 billion in cash and stock for Mariner. Unlike the sinking of BP’s Deepwater Horizon rig last April, this explosion did not result in a major oil spill. Moreover, the damage will have little impact on Mariner’s production. Apache is a buy.
DEL MONTE FOODS CO. $13 (New York symbol DLM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 193.7 million; Market cap: $2.5 billion; Price-to-sales ratio: 0.7; Dividend yield: 2.8%; WSSF Rating: Average) makes canned fruits, vegetables, sauces and soups. Its leading brands include Del Monte, Contadina, S&W and College Inn. In 2006, the company bought the Meow Mix line of cat foods and the Milk-Bone dog-biscuit business. These operations complemented its existing pet-food brands, including 9Lives and Kibbles ’n Bits. As well, Del Monte earns higher profits on pet foods than consumer foods like fruits and vegetables. The pet-food division supplied 47% of the company’s sales in the latest fiscal year, and 61% of its earnings....
INTERNATIONAL BUSINESS MACHINES CORP. $133 has agreed to buy Netezza Corp. (New York symbol NZ), whose technology helps businesses quickly analyze sales and other customer data. This helps Netezza’s clients make better decisions. IBM will pay $1.7 billion for Netezza when the deal closes later this year; on June 30, 2010, IBM held cash of $12.2 billion. Best Buy. DUN & BRADSTREET CORP. $72 has bought full control of its Australian credit-rating business. The $205 million-price is equal to 71% of the $288.7 million, or $5.42 a share, that Dun & Bradstreet earned in 2009. This move will help the company profit from rising demand for reliable credit ratings in the Asia-Pacific region. Buy. SNAP-ON INC. $46 earned $0.78 a share in the three months ended June 30, 2010, up 20.0% from $0.65 a year earlier. Revenue rose 9.8%. Demand for Snap-On’s automotive tools continues to rise as the improving economy spurs car sales. Buy.
FEDEX CORP., $82.28, New York symbol FDX, reported quarterly earnings than matched the consensus estimate. However, the shipping company predicted that its growth will slow in the current quarter. That caused the stock to fall 4% this week. In FedEx’s first quarter, which ended August 31, 2010, its earnings jumped 109.9%, to $380 million from a depressed $181 million a year earlier. Earnings per share rose 106.9%, to $1.20 from $0.58, on more shares outstanding. Revenue rose 18.1%, to $9.5 billion from $8.0 billion. The company continues to see strong demand for its overnight air-delivery services. Internationally, FedEx shipped 19% more packages than a year ago, mostly because of rising exports from Asia. The company shipped just 3% more packages inside the U.S....