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
VERIGY LTD. $11 (Nasdaq symbol VRGY; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.8 million; Market cap: $646.8 million; Price-to-sales ratio: 1.9; WSSF Rating: Extra Risk) lost $87 million, or $1.49 a share, in the fiscal year ended October 31, 2009. It earned $71 million, or $1.18 a share, in the prior year. These figures exclude writedowns of investments, as well as charges related to an 18% cut that Verigy made to its workforce. The layoffs saved Verigy $120 million in the latest year. Revenue for the year fell 53.3%, to $323 million from $691 million. However, orders rose 17% during the fourth quarter. Verigy expects that its revenue in the current quarter will rise by 8% to 19% over the fourth quarter, as the improving economy prompts chipmakers to spend more on testing equipment. Verigy is a buy.
Resource prices have climbed sharply since early 2009, as the global recession began to ease and some countries’ economies returned to growth. Despite their recent gains, prices for oil, gold and other commodities will likely keep rising. That’s partly because resources act as a hedge against inflation. We feel the best way to profit from rising resource prices is with high-quality companies, such as these four. They are all leaders in their fields, and are doing a good job of keeping their costs down. However, only three are buys right now. ENCANA CORP. $55 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 751.2 million; Market cap: $41.3 billion; Price-to-sales ratio: 2.1: WSSF Rating: Average) will split itself into two separate companies in December, now that shareholders have approved the plan. Break-ups like this help unlock hidden value, and generally lead to above-average results for a period of years....
QUAKER CHEMICAL CORP. $21 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 11.1 million; Market cap: $233.1 million; Price-to-sales ratio: 0.5; WSSF Rating: Average) makes lubricants and chemicals that keep mechanical parts from corroding. Weaker demand from carmakers recently prompted Quaker to cut 10% of its workforce. These savings helped the company earn $0.45 a share in the third quarter of 2009. That’s up 9.8% from $0.41 a year earlier. The company needs oil to make its products, so it also gained from lower oil prices. However, sales fell 25.4%, to $118.9 million from $159.5 million. The company is using its improving earnings to pay down debt. Its long-term debt is $64.9 million (or 28% of its market cap), down from $84.2 million at the end of 2008. Quaker’s $0.23-a-share quarterly dividend seems safe, and yields 4.4% on a yearly basis. Quaker Chemical is a buy.
MTS SYSTEMS CORP. $26 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 16.7 million; Market cap: $434.2 million; Price-to-sales ratio: 1.0; WSSF Rating: Average) earned $17.4 million, or $1.03 a share, in the fiscal year ended October 3, 2009. That’s down 63.1% from $47.1 million, or $2.68 a share, in the prior year. However, if you exclude a $12.1-million charge related to a 12% cut that MTS made to its workforce, it would have earned $1.51 a share in the latest year. These job cuts should save it $21 million in fiscal 2010. Sales fell 11.2%, to $408.9 million from $460.5 million, as struggling carmakers spent less on testing equipment. However, MTS is seeing higher demand from other types of firms, such as wind-turbine makers. The company continues to pay quarterly dividends of $0.15 a share, for an annualized yield of 2.3%. MTS Systems is a buy.
ARCHER DANIELS MIDLAND CO. $31 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 642.4 million; Market cap: $19.9 billion; Price-to-sales ratio: 0.3; WSSF Rating: Above Average) processes corn, wheat, soybeans and other crops into a wide variety of food ingredients, such as flour, oils and sweeteners. The company mainly sells its products to firms that make and process food. Archer Daniels is also the largest maker of ethanol from corn in the U.S. Ethanol is a gasoline additive that lowers harmful emissions. The recession has driven down ethanol prices by 30% from last year’s peak. However, falling corn prices have cut the company’s production costs. Despite the drop, the long-term outlook for Archer Daniels’ ethanol business remains bright. That’s because lower ethanol prices have forced many of its competitors into bankruptcy, and others have scaled back their operations. As well, governments will likely force oil companies to use more ethanol in their fuels over the next few years....
The best way to profit from rising use of smartphones and other wireless devices is through carriers, such as AT&T and Verizon. That’s because they have more revenue sources than smartphone makers. These include traditional phone, Internet and TV services. This diversity limits their reliance on a single device. AT&T INC. $27 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 5.9 billion; Market cap: $159.3 billion; Price-to-sales ratio: 1.3; WSSF Rating: Average) sells traditional telephone services to 45.7 million consumer and business customers in 13 states. Its wireless division has 81.6 million customers nationwide. Since 2007, AT&T has been the exclusive U.S. carrier of the hugely popular Apple iPhone. The company attracted a record 3.2 million new iPhone users in the three months ended September 30, 2009. About 40% of these customers were new to AT&T....
CANON INC. ADRs $38 (New York symbol CAJ; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.2 billion; Market cap: $45.6 billion; Price-to-sales ratio: 1.3; WSSF Rating: Above Average) is paying roughly $1.1 billion for Oce N.V., a Netherlands-based maker of printers and scanners. Canon earned $408.2 million, or $0.33 per ADR, in the three months ended September 30, 2009. (Each American Depositary Receipt represents one common share.) The deal should close in early 2010. Oce mainly makes equipment for large commercial printing firms. That nicely complements Canon’s business and consumer printing products. As well, Canon can use its distribution networks to increase Oce’s sales in Asia. Canon is a buy.
APPLE INC. $204 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 900.7 million; Market cap: $183.7 billion; Price-to-sales ratio: 5.0; WSSF Rating: Average) has won its court case against Psystar Corp., a Miami-based company that sells computers that run on Apple’s Mac operating system. Apple refuses to let other computer makers use its software, and the court upheld its copyright. A separate hearing in December will determine what damages Psystar may have to pay. While the amount will likely be small, this ruling will help protect Apple from competition from cheaper computers. Apple is a buy. J.P. MORGAN CHASE & CO. $42 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.9 billion; Market cap: $163.8 billion; Price-to-sales ratio: 1.8; WSSF Rating: Average) will buy the 50% of Cazenove Group that it doesn’t already own. Cazenove is a U.K.-based investment-banking and brokerage firm....
SYSCO INC. $27 (New York symbol SYY; Conservative Growth Portfolio; Consumer sector; Shares outstanding: 591.8 million; Market cap: $16.0 billion; Price-to-sales ratio: 0.4; WSSF Rating: Average) distributes food and other supplies to over 400,000 restaurants in North America. The weak economy has prompted more people to eat at home. As a result, Sysco’s revenue fell 8.1% in its first quarter, which ended September 26, 2009, to $9.1 billion from $9.9 billion. If you exclude an income-tax adjustment and other non-recurring items, earnings were flat, at $0.46 a share. Even so, Sysco raised its quarterly dividend by 4.2%, to $0.25 from $0.24. The new annual rate of $1.00 yields 3.7%. Sysco is a hold.
SARA LEE CORP. $12 (New York symbol SLE; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 697.3 million; Market cap: $8.4 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) is a leading maker of fresh and frozen baked goods, meats and other foods. Its major brands include Sara Lee (bread, cheesecake), Ball Park (wieners), Jimmy Dean (sausages), Hillshire Farms (deli meats) and Douwe Egberts (coffee). The company gets 16% of its revenue from its household and body-care products, such as soaps, shampoos, air fresheners, shoe polishes and insecticides. It mainly sells these outside of the U.S., in markets that include Europe, Asia and Africa. In North America and Europe, Sara Lee mainly sells to mass retailers and supermarkets. Wal-Mart, Sara Lee’s biggest customer, accounts for about 11% of the company’s total sales. Sara Lee also sells food to restaurants in North America....