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
RUGGEDCOM INC., $15.37, symbol RCM on Toronto, makes computer-networking equipment that is used in harsh environments. Its products are designed to reliably operate under high levels of electromagnetic interference. They can also cope with wide variations in temperature and humidity, as well as vibration and exposure to dust. They also work while exposed to such things as corrosive gases and water. In the three months ended March 31, 2010, RuggedCom’s sales rose 11.3%, to $19.4 million from $17.4 million a year earlier. The gain mainly resulted from higher sales to transportation and industrial clients. As well, the current revenue figure included a contribution from WiNetworks, which RuggedCom bought in September 2009. WiNetworks designs WiMAX equipment, which can provide wireless broadband access at a distance of up to 50 kilometres from fixed stations, and five to 15 kilometres from mobile stations. In contrast, most of today’s Wi-Fi networks are limited to only 30 to 100 metres....
A number of “green” stocks have emerged in the past few years as concern over the environment has grown. However, most of these companies lose money. That’s because many green technologies are still in the concept or research stages. As well, many of these firms are heavily reliant on government subsidies, which could be cut as governments deal with their high deficits. FPL Group is an excellent example of a profitable, low-risk green stock. (To reflect its increasing focus on green power, it is assuming the name of its NextEra alternative-energy subsidiary.) Steady income from FPL’s regulated power operations in Florida helps offset its less-predictable wind and solar-power projects. As well, its expansion into other parts of North America cuts its reliance on a single region. To top it off, the company has a long history of raising its dividend....
NEWELL RUBBERMAID INC. $16 (New York symbol NWL; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 278.2 million; Market cap: $4.5 billion; Price-to-sales ratio: 0.8; Dividend yield: 1.3%; WSSF Rating: Average) makes plastic storage bins and other consumer items. Its top brands include Rubbermaid, Sharpie and Levolor. The company went through a deep setback in sales and earnings in 2008. In response, it closed plants, merged warehouses and sold low-margin businesses, particularly those whose products require large amounts of plastic resins. These resins come from oil, so selling these businesses cuts Newell’s sensitivity to volatile oil prices....
AMEREN CORP. $24 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 238.2 million; Market cap: $5.7 billion; Price-to-sales ratio: 0.8; Dividend yield: 6.4%; WSSF Rating: Average) sells electricity and natural gas to 3.4 million customers in Illinois and Missouri. In the three months ended March 31, 2010, Ameren’s earnings fell 16.7%, to $95 million from $114 million a year earlier. Earnings per share fell 25.9%, to $0.40 from $0.54, on more shares outstanding. These figures exclude unusual items, such as gains on fuel-hedging contracts. Revenue was unchanged at $1.9 billion. Colder-than-normal winter weather pushed up electricity demand. However, lower power prices at the company’s non-regulated plants offset gains at its regulated operations. That was the main reason for the lower earnings....
Income-seeking investors should look at other factors besides a stock’s dividend yield. That’s because high yield can sometimes be a danger sign rather than a bargain. For example, a stock’s yield could be high simply because its share price has dropped sharply (because you use share price to calculate yield). Ameren has a higher dividend yield than Alliant. However, Ameren’s short-term prospects are weaker. The company cut its dividend in 2009, and may have to cut it again if its earnings remain depressed. On the other hand, Alliant’s earnings are improving. That should let it keep raising its dividend, as it has each year since 2003.
Consumer confidence is rising in the U.S., but the recovery remains fragile. To cut your risk, we look for consumer companies with well-known brands, like these three clothing retailers. Their strong brands should help them keep increasing sales, both in the U.S. and overseas. But only two are buys right now. LIMITED BRANDS INC. $24 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 323.4 million; Market cap: $7.8 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.5%; 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. Limited has introduced new products that are lifting its sales and increasing customer visits. As well, its Victoria’s Secret chain has introduced several low-priced items to attract cost-conscious shoppers....
NORDSTROM INC. $38 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 218.9 million; Market cap: $8.3 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.1%; WSSF Rating: Average) earned $0.52 a share in its first quarter, which ended May 1, 2010. That’s up 40.5% from $0.37 a share a year earlier. The upscale retailer continues to do a good job of managing its inventory. That lowers the need for costly clearance sales. Sales rose 16.5%, to $2.1 billion from $1.8 billion. Same-store sales rose 12.0%. Nordstrom also raised its quarterly dividend by 25%, to $0.20 a share from $0.16. The new annual rate of $0.80 yields 2.1%. Nordstrom is a buy.
SONY CORP. ADRs $30 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $30.0 billion; Price-to-sales ratio: 0.4; Dividend yield: 0.9%; WSSF Rating: Average) has teamed up with INTEL CORP. $21 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.6 billion; Market cap: $117.6 billion; Price-to-sales ratio: 3.1; Dividend yield: 3.0%; WSSF Rating: Above Average) and Internet search-engine provider Google Inc. (Nasdaq symbol GOOG). Under this new alliance, Sony will build television sets that use Intel’s chips and Google’s search and software expertise. The new sets will let viewers search and download videos from the Internet without an external computer. Sony will start selling the new sets in time for the 2010 Christmas shopping season. This alliance should give Sony a competitive advantage over other television makers. Sony is a buy....
AGILENT TECHNOLOGIES INC. $31 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 348.0 million; Market cap: $10.8 billion; Price-to-sales ratio: 2.3; No dividends paid; WSSF Rating: Average) makes testing systems that help manufacturers improve the quality of electronic products, such as cellphones and high-speed Internet equipment. It also makes measurement equipment for medical-research labs and drug developers. The company has completed its $1.5-billion purchase of California-based Varian Inc. Varian makes a wide range of medical and drug-testing equipment, such as mass spectrometers that detect and measure substances in blood and other patient samples. It also makes vacuum pumps and equipment that helps keep labs clean. Medical-equipment demand is much less cyclical than electronic-testing products. As well, clients must buy replenishable materials, like filters, for Varian’s products. That gives Agilent a new source of recurring revenue. So adding Varian cuts Agilent’s risk....
MTS SYSTEMS CORP. $29 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 16.4 million; Market cap: $475.6 million; Price-to-sales ratio: 1.3; Dividend yield: 2.1%; WSSF Rating: Average) earned $6.2 million, or $0.37 a share, in its second quarter, which ended April 3, 2010. That’s down 17.4% from $7.4 million, or $0.44 a share, a year earlier. The company recently cut 12% of its workforce. That should save it $21 million in fiscal 2010. Sales fell 12.4%, to $94.3 million from $107.7 million. MTS is seeing fewer testing-equipment orders from carmakers. However, demand for its sensors is improving. Still, the company needs a sustained economic recovery to spur its growth. MTS Systems is a hold.