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
CAMPBELL SOUP CO. $33 (New York symbol CPB; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 342.9 million; Market cap: $11.3 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.3%; WSSF Rating: Above Average) expects sales to rise by 2.5% to 3.5% in its current fiscal year, which ends July 31, 2010. That’s less than its earlier prediction of 4% to 5% growth. The weak economy is prompting more consumers to eat at home, and many are choosing cheaper, generic-brand canned soups. Campbell is responding by launching new soup promotions. It is also making its soups with fewer ingredients and less packaging. These moves should lift its fiscal 2010 earnings by around 10%, to $2.43 a share. The stock trades at 13.6 times that estimate. Campbell Soup is a buy....
APACHE CORP. $102 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 336.4 million; Market cap: $34.3 billion; Price-to-sales ratio: 4.0; Dividend yield: 0.6%; WSSF Rating: Average) raised its daily production by 9.2% in 2009. Even so, its earnings fell 50.2%, to $5.59 a share from $11.22 in 2008. Cash flow per share fell 32.5%, to $14.76 from $21.88. The lower results were mainly caused by a 31.8% drop in oil prices and a 44.9% decline in natural-gas prices. Apache’s production should rise again this year. That’s because new wells will begin operating in Australia, Canada and Egypt. The company’s strong balance sheet also gives it the flexibility to buy other related firms. Its $5.0 billion of long-term debt is a low 15% of its market cap. It holds cash of $2.05 billion, or $6.09 a share. Apache is a buy.
IDEXX LABORATORIES INC. $53 (Nasdaq symbol IDXX; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.6 million; Market cap: $3.1 billion; Price-to-sales ratio: 3.0; No dividends paid; WSSF Rating: Average) makes equipment that veterinarians use to detect diseases in animals. It also makes systems that detect contaminants in water and milk. The company sells its products in over 100 countries. Idexx began operating in 1983, and dominates its niche market. Despite its long history of success, many investors have probably never heard of Idexx, and few brokers cover it. Revenue rose 61.7%, from $638.1 million in 2005 to $1.03 billion in 2009. Earnings rose 54.1%, from $79.3 million in 2005 to $122.2 million in 2009....
FPL GROUP INC. $47 has raised its quarterly dividend by 5.8%, to $0.50 a share from $0.4725. The new annual rate of $2.00 yields 4.3%. Florida power regulators recently rejected most of the rate hikes that the company requested for 2010. However, FPL gets just over half of its earnings from its non-regulated businesses, such as its NextEra Energy Resources subsidiary. NextEra is the largest operator of wind and solar-power projects in the U.S. Buy. CONAGRA FOODS INC. $25 will buy back $500 million of its stock. That’s equal to 5% of its $10.9-billion market cap. There is no deadline for these purchases. Best Buy. T. ROWE PRICE GROUP INC. $51 continues to benefit from rising stock markets. That’s because its fee income rises and falls with the value of the mutual funds it manages. Thanks to its improving outlook, the company has raised its dividend by 8.0%. The new annual rate of $1.08 a share yields 2.1%. Hold....
KRAFT FOODS INC., $28.92, New York symbol KFT, is close to completing its purchase of U.K.-based Cadbury plc (New York symbol CBY). Cadbury is a leading maker of confectioneries, including chocolate, candy and gum. Investors who hold over 90% of Cadbury’s shares have tendered their holdings to Kraft’s offer. In all, Kraft is paying $19.4 billion in cash and shares. It expects to complete this takeover within the next two months. Meanwhile, Kraft earned $3.0 billion in 2009. That’s up 63.9% from $1.8 billion in 2008. Earnings per share rose 67.8%, to $2.03 from $1.21, on fewer shares outstanding. However, the 2008 earnings were depressed by $1.0 billion of writedowns and costs related to Kraft’s three-year restructuring plan, which it recently completed. The plan included selling or discontinuing less-profitable brands, closing plants and cutting jobs....
FAIRFAX FINANCIAL HOLDINGS, $372, symbol FFH on Toronto, plans to buy the 91.7% of Zenith National Insurance Corp. (New York symbol ZNT) that it doesn’t already own for $1.4 billion U.S. To help pay for the purchase, Fairfax will raise $200 million U.S. by issuing new shares. Zenith has two wholly owned subsidiaries: Zenith Insurance Company and ZNAT Insurance Company. These firms sell workers’ compensation insurance to businesses across the U.S. Sharply higher layoffs during the economic slowdown have hurt Zenith’s business. Fairfax has taken advantage of its strong financial position to buy other insurers whose share prices have dropped with the slow economy. It recently paid $960 million U.S. for the 27.4% of Odyssey Re Holdings Corp. that it didn’t already own....
TETHYS PETROLEUM $1.79 (Toronto symbol TPL; SI Rating: Speculative) (416-572-2065; www.tethyspetroleum.com; Shares outstanding: 157.2 million; Market cap: $281.3 million; No dividends paid) is producing and exploring for oil and natural gas in the Central Asian countries of Kazakhstan, Uzbekistan and Tajikistan. Tethys’ properties in Kazakhstan and Uzbekistan produce about 17 million cubic feet of gas and 960 barrels of oil per day. In the three months ended September 30, 2009, Tethys’ revenue rose 63.5%, to $2.4 million from $1.5 million. (All figures except share price and market cap in U.S. dollars.) Cash flow per share was negative $0.01, an improvement over negative $0.05 a year earlier....
Aggressive investments should make up no more than, say, 30% of your portfolio. You can cut your risk all the more by taking a conservative approach to your aggressive holdings. To start, your aggressive portfolio should still reflect our three-pronged Successful Investor wealth-building philosophy. That is, invest mainly in well-established companies; spread your money out across most if not all of the five main economic sectors (Manufacturing, Resources, Consumer, Finance, Utilities); downplay stocks that are in the broker/public relations limelight. You may stretch these rules a little, while still sticking to the general idea. You may invest in more companies that are less well-established, compared to a conservative investor. But avoid loading up on penny stocks, recent new issues, or any stocks that expose you to a serious risk of total loss....
REITMANS (CANADA) LTD. $16.28 (Toronto symbol RET.A; SI Rating: Extra Risk) (514-384-1140; www.reitmans.com; Shares outstanding: 68 million; Market cap: $1.1 billion; Dividend yield: 4.4%) owns 984 women’s clothing stores across Canada. The chain consists of 372 Reitmans, 167 Smart Set, 163 Penningtons, 123 Addition Elle, 76 Thyme Maternity, 66 RW & Co. and 17 Cassis stores. Reitmans continues to monitor its regional markets, and open and close stores as necessary. In the three months ended October 31, 2009, Reitmans’ revenue fell slightly, to $270.7 million from $271.2 million a year earlier. Same-store sales declined 2.2%. Earnings fell 17.7%, to $18.9 million, or $0.28 a share, from $23 million, or $0.33 a share....
PRT FOREST REGENERATION INCOME FUND $2.11 (Toronto symbol PRT.UN; SI Rating: Speculative) (250-381-1404; www.prtgroup.com; Shares outstanding: 9.7 million; Market cap: $20.5 million; Dividends suspended in January 2009) has received $4.6 million in insurance proceeds to cover damage to some of its greenhouses that was caused by a heavy snowstorm in December 2008. PRT will put the cash toward its debt. That will lower its interest costs. The fund’s debt of $6.5 million is 31.7% of its market cap. Demand for PRT’s seedlings should improve as the U.S. economy recovers and housing starts revive. Demand should also rise as British Columbia begins to replace forests destroyed by the mountain pine beetle infestation....