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
AUTODESK INC. $24 (Nasdaq symbol ADSK; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 229.7 million; Market cap: $5.5 billion; Price-to-sales ratio: 2.8; WSSF Rating: Average) earned $56.7 million, or $0.24 a share, in its second quarter, which ended July 31, 2009. That’s down 56.5% from $130.3 million, or $0.56 a share, a year earlier. These figures exclude costs related to Autodesk’s plan to cut 14% of its workforce in response to lower demand for its 3D-design software. This should save Autodesk $250 million a year, starting next year. Revenue fell 33.0%, to $414.9 million from $619.5 million. However, new government spending on infrastructure projects should spur architectural and engineering firms to buy more of Autodesk’s products. Autodesk is a buy.
TEXAS INSTRUMENTS INC. $24 (New York symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $31.2 billion; Price-to-sales ratio: 2.9; WSSF Rating: Average) is seeing higher demand for its analog chips....
The American Pet Products Association estimates that spending on pets will rise 5% this year, despite the economic slowdown. As well, over 60% of U.S. households now own a pet, and this number is expected to rise. These trends should continue to help these two pet-focused stocks. IDEXX LABORATORIES INC. $52 (Nasdaq symbol IDXX; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.6 million; Market cap: $3 billion; Price-to-sales ratio: 3.1; WSSF Rating: Average) makes equipment that veterinarians uses to detect diseases in animals. Idexx also makes systems that detect contaminants in water and milk. Because of the weak economy, fewer pet owners are taking their animals to veterinarians for routine screenings. This has hurt sales of Idexx’s systems and supplies. As well, Idexx gets 40% of its sales from outside the U.S. This leaves it vulnerable to a high U.S. dollar....
WINDSTREAM CORP. $9.62 (New York symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 436.7 million; Market cap: $4.2 billion; Price-to-sales ratio: 1.4; WSSF Rating: Average) will buy privately held Lexcom Inc., which sells telephone and cable services to over 23,000 customers in Lexington, North Carolina. The deal should close by the end of the year. Windstream will pay $141 million for Lexcom. That’s 1.6 times the $90.8 million, or $0.21 a share, that Windstream earned in the latest quarter. The company feels that combining billing and other back-office functions will let it cut its costs by $5 million a year. Windstream is a buy.
Microsoft is planning to release its new Windows 7 operating system on October 22. This should spur computer sales and upgrades. That’s good news for leading chipmakers, such as Intel and Nvidia. Both are also profiting from the growing use of mobile devices to access the Internet. INTEL CORP. $20 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.6 billion; Market cap: $112 billion; Price-to-sales ratio: 3.3; WSSF Rating: Above Average) is the world’s leading computer-chip maker, with 80% of the market. The company is combining its operations into two main divisions. These will be organized by function instead of by product. The first, the Intel Architecture Group, will design chips for computers, cellphones and similar devices. The second, called the Technology and Manufacturing Group, will manage Intel’s manufacturing plants....
APPLE INC. $186 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 895.8 million; Market cap: $166.6 billion; Price-to-sales ratio: 4.8; WSSF Rating: Average) requires iPhone buyers to enter a two-year service contract. Because it offers users free software updates, accounting rules force Apple to spread the value and costs of these sales over two years. This rule has no effect on Apple’s cash flow. A proposed change would let Apple recognize more revenue and profit from the iPhone at the time of sale. It’s a cosmetic change, but it could balloon Apple’s earnings and cut its p/e ratio. Many investors have avoided Apple because it trades at a high 32 times earnings, so a lower p/e could attract new buyers. Apple is a buy.
WESTERN UNION CO. $20 (New York symbol WU; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 701.6 million; Market cap: $14 billion; Price-to-sales ratio: 2.8; WSSF Rating: Above Average) has provided money-transfer services to Cuba since 1999. Cubans living in the U.S. can send money to close relatives in Cuba at over 3,000 of Western Union’s U.S. locations. The company also has 100 locations in Cuba. Western Union should benefit from new rules that have removed limits on the amount and frequency of transfers. Western Union is a buy. NORDSTROM INC. $31 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 216.8 million; Market cap: $6.7 billion; Price-to-sales ratio: 0.8; WSSF Rating: Average) earned $0.48 a share in its second quarter, which ended August 1, 2009. That’s down 26.2% from $0.65 a year earlier....
ENCANA CORP. $58 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 751.1 million; Market cap: $43.6 billion; Price-to-sales ratio: 1.7; WSSF Rating: Average) will split itself into two separate companies. One will keep the EnCana name, and will focus on unconventional natural gas. The other will operate as Cenovus Energy Inc., and will specialize in oil-sands projects, oil refineries and conventional natural gas. The new EnCana will account for about two-thirds of the company’s current production and reserves. Cenovus will account for the remaining third. EnCana had hoped to complete the split in early 2009, but the stock-market decline and tight credit markets would have made it difficult for the two new, smaller companies to raise capital to fund new projects. Now that conditions have improved, EnCana has decided to go ahead with the split. In September, Cenovus sold $3.5 billion in new long-term notes....
DIAGEO PLC ADRs $63 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 624.9 million; Market cap: $39.4 billion; Price-to-sales ratio: 2.6; WSSF Rating: Above Average) is the world’s largest premium alcoholic-beverage company. (Each American Depositary Receipt represents four Diageo common shares.) London-based Diageo has 28% of the global market. Spirits account for 73% of its sales, followed by beer (22%) and wine (5%). It gets 35% of its sales from North America, 30% from Europe, 10% from Asia, and 25% from the rest of the world. Diageo was formed in 1997 through the merger of GrandMet and Guinness.
High-quality brands cut Diageo’s risk
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INVACARE CORP. $23 earned $0.30 a share in the second quarter of 2009, up 36.4% from $0.22 a year earlier. Much of the gain came from the company’s ongoing restructuring plan, which started in July 2005. Under the plan, Invacare is shifting production of wheelchairs, motorized scooters and other mobility and homecare products to low-cost countries and simplifying its product lines. Revenue fell 7.7%, to $412.5 million from $447.2 million, mostly due to unfavourable foreign-exchange rates. Buy. UNITED TECHNOLOGIES CORP. $63 still expects to earn about $4.08 a share this year, despite slow demand for its aerospace and construction-related products. As well, it expects its 2010 earnings to rise, mainly due to cost cuts. Buy. VERIZON COMMUNICATIONS INC. $30 has raised its quarterly dividend by 3.3%, to $0.475 a share from $0.46. The new annual rate of $1.90 yields 6.3%. Best Buy.