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.
Read More
Close
Growth Stocks Library Archives
MOTOROLA INC., $8.57, New York symbol MOT, rose 5% this week after it reported better-than-expected earnings. The company also launched two new smartphones. In the three months ended October 3, 2009, Motorola earned $12 million, or $0.01 a share. If you exclude unusual items, it would have earned $0.02 a share. Analysts had expected the company to break even. In the year-earlier quarter, Motorola lost $397 million, or $0.18 a share. Among the unusual items the company recognized in the quarter were costs related to its plan to break itself into two publicly traded companies — the mobile-devices business, and the wireless-infrastructure and home-equipment operations. Motorola lowered its costs during the quarter, including an 8% cut in its workforce and the closure of some plants; these were the main reasons for the improved earnings. Motorola feels that these reductions will save it $1.9 billion in 2009. That’s up $100 million from its previous estimate....
GARMIN LTD., $30.26, symbol GRMN on Nasdaq, fell over 20% this week after Dutch-based rival TomTom reported that average selling prices for its devices were 8% lower than analysts were expecting in its latest quarter. Like TomTom, Garmin makes navigation devices that use the global positioning system (GPS). The company reports its results next week. Also this week, Motorola and Verizon Wireless announced the first smartphone to feature Google’s Android 2.0 operating system for mobile devices. The new phone will allow users to access Google Maps Navigation, which provides turn-by-turn voice guidance as a free feature of Google Maps. The phone will also offer additional features, such as live traffic and business information, and Google Street View, which shows users photographs of the streets they look up....
Consumer stocks tend to add stability to a portfolio. That’s because these firms sell items, like food, that consumers must buy, regardless of the direction of the economy. General Mills is a top choice in the Consumer sector. The company has been cutting expenses and raising prices in response to higher ingredient costs. This should spur long-term earnings growth, especially now that commodity prices have fallen. Lower costs will also free up cash for expansion and dividends. Moreover, General Mills should benefit from its growing international presence, as some countries may well see a faster recovery (and corresponding rise in consumer spending) than others. GENERAL MILLS INC. $65 (New York symbol GIS; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 326.6 million; Market cap: $21.2 billion; Price-to-sales ratio: 1.5; WSSF Rating: Above Average) is the second-largest cereal maker in the U.S., after Kellogg. Its main brands include Cheerios, Wheaties, Lucky Charms, Total and Chex....
YUM! BRANDS INC. $34 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 467.7 million; Market cap: $15.9 billion; Price-to-sales ratio: 1.5: WSSF Rating: Above Average) is a fast-food operator whose main brands include Kentucky Fried Chicken. “Colonel” Harland Sanders, originator of the KFC recipe, turned himself into the personification of the brand. He was its spokesperson until his death in 1980. Yum recently hired an actor, dressed him up like Colonel Sanders, and sent him to United Nations headquarters in New York. The purpose of the stunt was to publicize Yum’s new grilled chicken as an alternative to its signature fried chicken. The actor asked Ban Ki-moon, UN Secretary General, to register the “Grilled Nation” of grilled chicken eaters as the UN’s 193rd member state. The stunt probably offended some, but the free publicity and word of mouth that Yum gets should vastly outweigh any loss of business....
Medical-device sales have suffered lately, partly because of the recession. As well, proposed reforms to the U.S. health-care system could limit or cut the amount that hospitals and clinics can recoup from insurance companies. This could leave them with less to spend on medical devices. However, these are essential products, so sales should rebound over the next few months, regardless of the recovery’s strength or the outcome of the health-care debate. Still, only three of these medical-device makers are buys right now. BAXTER INTERNATIONAL INC. $55 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 602.7 million; Market cap: $33.1 billion; Price-to-sales ratio: 2.7; WSSF Rating: Average) makes medical equipment through three main divisions. BioScience (43% of 2008 sales), makes vaccines and drugs; Medical Delivery (37%) makes intravenous equipment and systems; and Renal (19%) makes dialysis equipment. Other products account for the remaining 1% of sales....
AMERICAN EXPRESS CO. $35 (New York symbol AXP; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $42.0 billion; Price-to-sales ratio: 1.6; WSSF Rating: Average) earned $0.44 a share in the three months ended September 30, 2009. That’s down 40.5% from $0.74 a year earlier. The latest earnings excluded a $0.10-a-share gain related to the restatement of earnings in prior year. This was done to correct errors in the way the company converted foreign subsidiaries’ earnings into U.S. dollars. Revenue fell 16.0%, to $6.0 billion from $7.2 billion. The company wrote off 8.6% of its credit- and charge-card loans, up from 5.7% a year earlier. However, that’s an improvement over 9.7% in the previous quarter. Accounts that are more than 30 days past due also fell from the previous quarter. Moreover, average spending per cardholder rose 6.9% from the previous quarter. American Express is a buy.
SONY CORP. ADRs $29 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $29.0 billion; Price-to-sales ratio: 0.4; WSSF Rating: Average) will let users of its PlayStation 3 video game player instantly view movies and TV shows from Netflix Inc. (Nasdaq symbol NFLX). Netflix operates an online movie-rental service with over 100,000 titles. Users will have to sign up with Netflix to use this service. However, Netflix already has 11.1 million U.S. subscribers, and many of them no doubt already own a PlayStation 3. This new service should also spur PlayStation 3 sales ahead of the Christmas shopping season. Sony is a buy.
PHILIPS ELECTRONICS N.V. ADRs $25 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 926.7 million; Market cap: $23.2 billion; Price-to-sales ratio: 0.7; WSSF Rating: Average) gets roughly 50% of its revenue by making consumer electronics, such as TV sets, DVD players and kitchen appliances. Netherlands-based Philips also makes lighting equipment (25% of revenue) and medical equipment (25%). Each American Depositary Receipt represents one Philips common share. The weak economy continues to hurt consumer-electronics demand. As well, slow automotive and construction markets have dampened sales at Philips’s lighting division. Moreover, hospitals and clinics are putting off orders for CAT and MRI scanners because of uncertainty over U.S. health-care reforms. In response, Philips aims to lower its annual expenses by 600 million euros (1 euro = $1.47 U.S.). It will mainly accomplish this by cutting 6,000 jobs, or 5% of its workforce. So far, the company has saved 118 million euros. It expects to save as much as 159 million euros by the end of this year....
The recession has hurt the earnings of these two high-quality shipping companies. However, both are doing a good job of controlling their costs. This should improve their profitability, particularly as the economy rebounds. The recent drop in fuel costs also brightens their prospects. However, we prefer FedEx to Arkansas Best right now, as its larger international operations lower its reliance on North America. FEDEX CORP. $74 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 312.5 million; Market cap: $23.1 billion; Price-to-sales ratio: 0.7; WSSF Rating: Average) delivers packages and documents in the U.S. and over 220 other countries. FedEx earned $0.58 a share in its first quarter, which ended August 31, 2009. That’s down 52.8% from $1.23 a year earlier. Revenue fell 19.7%, to $8 billion from $10 billion. Like most shipping companies, FedEx added a surcharge to its fees when fuel costs were rising. But now that oil prices have fallen to around $77 a barrel from last year’s peak of $148, FedEx is getting less revenue from these surcharges....
INTERNATIONAL BUSINESS MACHINES CORP. $122 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $158.6 billion; Price-to-sales ratio: 1.7; WSSF Rating: Above Average) is looking to increase its software sales to businesses with a new suite of programs that use the free Linux operating system. Many businesses put off upgrading their computers when Microsoft launched Windows Vista in 2007. IBM hopes to convince these customers to use its cheaper software instead of upgrading to Microsoft’s new Windows 7 operating system. Linux has been slow to catch on due to compatibility issues with certain software. But IBM’s backing should help offset these concerns. IBM is a buy.