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
WYNDHAM WORLDWIDE, $22.54, symbol WYN on New York, rose 10% this week after it reported higher-than-expected fourth-quarter profits. In the three months ended December 31, 2009, Wyndham’s earnings per share, excluding one-time items, fell 14.9%, to $0.40 from $0.47. Despite the drop, the latest earnings beat the $0.37 a share that analysts were expecting. Revenue rose slightly, to $913 million from $911 million. That was also higher than forecast: analysts had been expecting revenue of $855.7 million. The higher revenue was mainly the result of the economic recovery, which has pushed up travel demand and increased the number of guests at Wyndham’s hotels....
AEROPOSTALE INC., $33.73, symbol ARO on New York, plans to split its shares on a 3-for-2 basis. Shareholders of record on February 24 will get one additional Aeropostale share for every two shares they hold. The company will have 94 million outstanding shares after the split. It now has 62.7 million outstanding shares. When a stock splits, the percentage of the company that you own is unchanged. You simply hold more shares, which are each worth proportionally less. Some studies have shown that companies that split their shares are better investments than those that do not carry out splits, but that confuses cause and effect. When a company’s stock goes up a great deal, it has an incentive to split the stock and stop it from going to higher prices where it might be less liquid....
TOYOTA MOTOR CO. ADRs, $74.71, New York symbol TM, fell again week after U.S. highway-safety regulators launched a formal investigation into reports of problems with the brakes on its hybrid vehicles, including its top-selling Prius hybrid compact car. Last week, Toyota recalled 4.1 million vehicles to fix a problem that could cause the gas pedal to stick in the downward position. The stock has dropped by 15% since the gas-pedal problem was first reported. The company estimates that the recall will cost it up to $2 billion. To put this figure in context, Toyota earned $1.7 billion in its third quarter, which ended December 31, 2009. That’s a big improvement over the $1.7 billion it lost a year earlier. The company did not report per-share earnings figures. Sales rose 17.5%, to $58.8 billion from $50.0 billion....
TOYOTA MOTOR CO. ADRs, $77.00, New York symbol TM, fell 12% this week after the company said it would recall 4.1 million cars and trucks made since 2005. The recall was triggered by a problem that could cause the gas pedal to stick in the downward position. The company has also temporarily suspended sales and production of the affected models. Toyota and CTS Corp. (New York symbol CTS), the company that makes the gas pedals, have developed a way to fix the problem by installing an extra part inside the gas-pedal system. If auto regulators approve this modification, Toyota and CTS could start delivering these new parts to dealers within the next two weeks. This latest recall is in addition to Toyota’s November 2009 recall of over five million Toyota and Lexus vehicles that it sold in the U.S. The company recalled these vehicles because their gas pedals could get stuck under their floor mats and cause uncontrolled acceleration....
TEMPUR-PEDIC, $24.89, symbol TPX on New York, reported sharply higher revenue and earnings in the latest quarter. In the three months ended December 31, 2009, Tempur-Pedic’s earnings rose 129.1%, to $29.1 million, or $0.38 a share, from $12.7 million, or $0.17 a share, a year earlier. This result was slightly higher than the $0.37 a share that analysts were expecting. The higher earnings were mainly caused by a 29.4% revenue increase, to $244.8 million from $189.1 million a year earlier. As well, the company’s international sales rose 15%, and its U.S. sales jumped 40%....
We’ve chosen IBM as our Stock of the Year for 2010. That’s no guarantee of gains, of course. But it does tell you we feel IBM seems to offer above-average if not great returns this year, but with below-average risk. In the past decade, IBM has transformed itself from a computer maker to a computer-services provider. That’s because selling its expertise generates higher profits than selling computer hardware. Its services help clients cut costs and improve productivity, so demand should rise now that the global economy is growing again. IBM’s strong brand and reputation are also helping it expand in fast-growing countries like China, India and Brazil. As well, the continuing growth of Internet banking and the online selling of goods should fuel its earnings for years to come....
APPLE INC. $208 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 906.3 million; Market cap: $188.5 billion; Price-to-sales ratio: 4.1; No dividends paid; WSSF Rating: Average) has gained 2,089.5% since we first recommended it at $9.50 (adjusted for splits) in our November 2000 issue. Back then, the iPod was still a year away and Apple was struggling to compete with cheaper computers that ran Microsoft Windows. But we liked it because its computers continued to dominate certain industries, such as graphic design and publishing. The stock was also cheap, at around 15 times earnings, and it had little debt. To top it off, it held cash of $6 a share. Apple now trades at 26.4 times the $7.89 a share it will likely earn in its current fiscal year (which ends September 30). That p/e ratio would be higher still, but Apple recently adopted new accounting rules that let it recognize more revenue from the iPhone at the time of sale, instead of spreading it out over two years. This raised its earnings and cut its p/e....
Food processors like the seven companies we analyze below add stability to any portfolio. That’s because they’ve built brands that have strong customer loyalty and produce steady, predictable revenue streams. These seven firms’ strong brands are also helping them expand in developing markets, such as Asia and Latin America. These seven stocks trade at reasonable multiples to earnings, and have long histories of rising dividends. We see all seven as buys for long-term gains. KRAFT FOODS INC. $28 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.5 billion; Market cap: $42.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 4.1%; WSSF Rating: Above Average) is the world’s second-largest food company after Switzerland-based Nestle S.A. Its leading brands include Kraft cheese, Maxwell House coffee, Nabisco cookies and Oscar Meyer meats....
CEDAR FAIR L.P. $13 (New York symbol FUN; Income Portfolio, Consumer sector; Units outstanding: 55.2 million; Market cap: $717.6 million; Price-to-sales ratio: 0.8; No dividends paid since November 2009; WSSF Rating: Average) owns 11 amusement parks and seven water parks, mostly in the midwestern and northeastern U.S. It recently accepted an $11.50-a-unit takeover offer from Apollo Global Management, a private-equity firm. However, another private-equity firm, Q Funding III LP, owns 10% of Cedar Fair and is opposed to the takeover. The possibility of a competing offer is why the stock is trading above $11.50. Cedar Fair is still a hold.
WASHINGTON FEDERAL INC. $19 (Nasdaq symbol WFSL; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 112.4 million; Market cap: $2.1 billion; Price-to-sales ratio: 3.1; Dividend yield: 1.1%; WSSF Rating: Average) earned $7.9 million in its first quarter, which ended December 31, 2009. That’s a 63.2% drop from its year-earlier earnings of $21.5 million. Earnings per share fell 69.6%, to $0.07 from $0.23, on more shares outstanding. The company’s loan-loss provisions jumped 99.3%, to $69.8 million from $35 million. That was the main reason for the lower earnings. The increase was largely due to rising unemployment and weak housing markets in California and the Pacific northwest. Washington Federal is a hold.