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
In response to the BP oil spill in the Gulf of Mexico, regulators will probably require offshore drillers to install more equipment aimed at preventing future spills. These extra costs would hurt the profits of companies that are active in the Gulf, including Chevron and Apache. However, any new costs would have little impact on their long-term prospects. As well, the spill should make less-risky onshore producers more attractive. That would favour Encana, with its growing unconventional natural-gas reserves, and Cenovus, which focuses on the oil sands. CHEVRON CORP. $72 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $144.0 billion; Price-to-sales ratio: 0.8; Dividend yield: 4.0%; WSSF Rating: Above Average) is the second-largest integrated oil company in the U.S., after ExxonMobil. Chevron gets 95% of its earnings by producing oil and natural-gas. The remaining 5% comes from its refineries, petrochemical operations and gas stations....
NVIDIA CORP. $12 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 572.2 million; Market cap: $6.9 billion; Price-to-sales ratio: 1.8; No dividends paid; WSSF Rating: Average) earned $137.6 million, or $0.23 a share, in its first quarter, which ended May 2, 2010. A year earlier, it lost $201.4 million, or $0.37 a share. However, the year-earlier loss included a $140.2-million charge related to its buyback of worthless stock options from its employees. Revenue jumped 50.8%, to $1.0 billion from $664.2 million. The chipmaker spent 21.8% of its revenue on research in the latest quarter. Inventories rose by 17% in the past three months, which suggests chip demand is slowing. However, Nvidia’s new focus on chips for mobile devices makes it less reliant on cyclical computer sales. Nvidia is a buy.
H.J. HEINZ CO. $45 (New York symbol HNZ; Income Portfolio, Consumer sector; Shares outstanding: 318.1 million; Market cap: $14.3 billion; Price-to-sales ratio: 1.4; Dividend yield: 4.0%; WSSF Rating: Above Average) is buying privately held Foodstar, a leading maker of soy sauces in China. Heinz will pay $165 million for Foodstar. That’s equal to 18% of the $914 million, or $2.87 a share, that Heinz earned in the fiscal year ended April 28, 2010. The company aims to close the deal in a few months. Heinz feels its marketing and distribution expertise will help Foodstar expand its share of China’s soy-sauce market, which is growing by 7% to 8% a year....
Oil prices fell from their July 2008 peak of $148 U.S. a barrel to just under $40 U.S. in February 2009. Prices have roughly doubled since then, but they are unlikely to pass their 2008 highs any time soon. We think oil prices could rise further if the global economy continues to recover, as we expect. As well, oil and natural-gas stocks can provide your portfolio with a good hedge against inflation. Even so, we continue to advise against overindulging in oil and gas stocks. That’s because the Resource sector (including oil and natural gas) is highly volatile, and no one can accurately predict future commodity prices....
Sherwin-Williams and La-Z-Boy are doing a good job of cutting costs in response to weak housing markets, which are hurting paint and furniture demand. The resulting savings have boosted both companies’ earnings and share prices. However, their sales will likely remain weak for the next year or two. SHERWIN-WILLIAMS CO. $74 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 109.7 million; Market cap: $8.1 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.9%; WSSF Rating: Above Average) is North America’s largest paint producer. Sherwin also operates over 3,300 paint stores, which account for 60% of its sales. In the three months ended March 31, 2010, Sherwin’s earnings fell 12.5%, to $32.6 million from $37.3 million a year earlier. Sherwin is an aggressive buyer of its own stock. Due to fewer shares outstanding, earnings per share fell 6.3%, to $0.30 from $0.32....
BRIGGS & STRATTON CORP. $19 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 50.0 million; Market cap: $950.0 million; Price-to-sales ratio: 0.5; Dividend yield: 2.3%; WSSF Rating: Above Average) is the world’s largest lawnmower engine maker. This business accounts for 60% of Briggs’ revenue. It gets the remaining 40% by making other home and garden equipment, such as pressure washers and snow blowers. Briggs’ sales have steadily fallen since their 2005 peak. That’s because the recession and high unemployment cut demand for discretionary items like lawnmowers. In response, the company closed plants and cut its workforce....
ARCHER DANIELS MIDLAND CO. $27 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 643.1 million; Market cap: $17.4 billion; Price-to-sales ratio: 0.3; Dividend yield: 2.2%; WSSF Rating: Above Average) earned $421 million, or $0.65 a share, in its third quarter, which ended March 31, 2010. That’s a big gain over the $3 million, or nil per share, it earned a year earlier. However, a $132-million loss from currency-hedging contracts at its Mexican affiliate depressed the year-earlier earnings. (Archer Daniels owns 23% of Mexico-based Gruma, the world’s largest maker of corn flour and tortillas). Earnings at the oilseed processing business, which makes vegetable oils, rose 80.8%. The corn-processing division’s earnings jumped 112.2%. Overall sales rose 2.0% in the quarter, to $15.1 billion from $14.8 billion. These gains partly reflect rising demand for biofuels, such as ethanol. Biofuel demand should continue to improve with the global economy....
MOTOROLA INC. $7.30 (New York symbol MOT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.3 billion; Market cap: $16.8 billion; Price-to-sales ratio: 0.8; No dividends paid since January 2009; WSSF Rating: Average) has settled a three-year-long patent dispute with Research in Motion Ltd. (Nasdaq symbol RIMM). Research in Motion makes the popular BlackBerry smartphone. Research in Motion will pay Motorola an undisclosed sum, as well as regular royalties related to certain wireless technologies. The two companies also agreed to drop all outstanding lawsuits. Setting this dispute improves the prospects for Motorola’s cellphone business, which it plans to spin off as a separate company next year. However, this business is still losing money. It also faces increasing competition from other smartphones, including Apple’s iPhone and the BlackBerry....
FEDEX CORP. $77 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 313.2 million; Market cap: $24.1 billion; Price-to-sales ratio: 0.7: Dividend yield: 0.6%; WSSF Rating: Average) delivers packages and documents in the U.S. and over 220 other countries. Its fleet of 80,000 trucks and 664 aircraft delivers over 8 million packages a day. FedEx’s revenue rose 17.5%, from $32.3 billion in 2006 (its fiscal year ends May 31) to $38.0 billion in 2008. Many businesses use FedEx to restock their inventories and ship their products; as a result, the recession cut its 2009 revenue by 6.5%, to $35.5 billion. Shipping volumes improved in 2010, but Fed-Ex had to cut its rates to stay competitive. That’s why its 2010 revenue fell 2.1%, to $34.7 billion.
Recession cut earnings by 44%
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C.R. BARD INC. $80 has raised its quarterly dividend by 5.9%, to $0.18 a share from $0.17. The new annual rate of $0.72 yields 0.9%. The medical-device maker also plans to buy back up to $500 million of its shares. There is no time limit to this plan. The company still has $107 million remaining under a $500-million buyback authorization from April 2009. Together, these two plans are equal to 8% of Bard’s $7.6-billion market cap. Buy. ALCOA INC. $11 has signed a deal with Russia’s state-owned JSC United Shipbuilding Corp. Under this agreement, JSC will use more aluminum in the ships it builds. Alcoa has two plants in Russia. This deal enhances their long-term prospects. Buy. WELLS FARGO & CO. $27 is closing all 120 of its Canadian offices because competition from Canada’s big domestic banks continues to hurt their profitability. As well, new regulations aimed at preventing another credit crisis could increase its costs. Hold.