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
ADOBE SYSTEMS INC., $32.95, Nasdaq symbol ADBE, will buy Omniture Inc. (Nasdaq symbol OMTR), which makes software that measures and analyzes web-site traffic. The deal will close later this year. Omniture’s software tracks the pages that site visitors view, as well as the links they click. Omniture’s 5,000 clients use this information to improve their sites, and to help determine how much to charge advertisers. Adobe makes web-design software, which it plans to modify to take advantage of Omniture’s online-marketing expertise. This should help Adobe’s customers increase their ad revenues....
ALARMFORCE INDUSTRIES, $5.40, symbol AF on Toronto, reports that it earned $1.4 million, or $0.12 a share, in the three months ended July 31, 2009. That’s up 156.5% from $553,926, or $0.05 a share, a year earlier. The home-security firm’s cash flow per share jumped 54.5%, to $0.17 from $0.11. Revenue rose 12.5%, to $8.5 million from $7.6 million. AlarmForce mainly attracts new customers by aggressively promoting itself through radio and TV advertising. In the U.S., subscriptions jumped 54.4%, to 12,200 from 7,900 a year earlier. Canadian subscriptions rose 8.7%, to 86,500 from 79,600. In all, the company had 98,700 subscribers at the end of the most recent quarter, up 12.8% from 87,500 a year earlier. Demand for security systems remains steady, and AlarmForce’s balance sheet is strong. These factors will let the company continue to profit from the economic recovery. Moreover, AlarmForce’s $929,168 long-term debt is just 1.4% of its market cap. It holds cash of $6.6 million, or $0.54 a share....
WYNDHAM WORLDWIDE $16.01 (New York symbol WYN; SI Rating: Extra Risk) (973-753-6000; www.wyndhamworldwide.com; Shares outstanding: 178.6 million; Market cap: $2.9 billion) is one of the world’s largest hospitality companies, with 7,000 franchised hotels worldwide. Aside from Wyndham and Ramada, it owns a variety of other quality brands, including Days Inn, Super 8, Wingate by Wyndham, Baymont Inn & Suites, Microtel Inns & Suites, Hawthorn Suites, Howard Johnson, Travelodge, Knights Inn and AmeriHost Inn. The company also manages a number of vacation resorts, rental properties, luxury clubs and time-shares. This wide range of operations gives Wyndham more consistent profits than most of its competitors, who mainly focus on hotels. In the three months ended June 30, 2009, revenue fell 18.7%, to $920 million from $1.13 billion a year earlier, as its hotels saw fewer guests in a slower economy. Earnings, excluding one-time items, fell 20.2%, to $75 million, or $0.41 a share, from $94 million, or $0.53....
Consolidating can be a profitable business strategy, but be wary of underestimating its risk. A consolidator operates in a fragmented industry, and grows by buying up smaller competitors. It then cuts costs at acquired firms and increases sales to its newly acquired customers. In fragmented industries, some buyers always want to sell, if only to retire. But buyers are scarce, since banks are reluctant to lend. Meanwhile, the competitive threat from the consolidator increases because its size lets it profit from economies of scale....
FirstService and Stantec both continue to expand by acquiring competitors in their fragmented markets. This strategy lets companies grow steadily, but it can also add risk. FIRSTSERVICE CORP. $18.58 (Toronto symbol FSV; SI Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 28.1 million; Market cap: $522.3 million) operates in the following areas of the real-estate services market: commercial real estate; residential property management; and property services. FirstService has more than 17,000 employees. In the three months ended June 30, 2009, FirstService’s revenue fell 6.5%, to $425.3 million from $454.8 million a year earlier. (All figures except share price in U.S. dollars.) Earnings per share fell 17.9% to $0.46 from $0.56....
STREETTRACKS GOLD SHARES $99.91 (New York symbol GLD; SI Rating: Speculative) (www.streettracksgoldshares.com; 1-866-320-4053; Shares outstanding: 353.1 million; Market cap: $35.3 billion) is an investment trust that aims to reflect the price of gold bullion, less the trust’s expenses. StreetTRACKS Gold Shares only hold gold bullion, and, from time to time, cash. Unlike stocks, commodity investments, such as gold bullion, do not generate income. Instead, they come with a continuing cash drain for management, insurance and so on. Expenses for StreetTRACKS Gold Shares are 0.4% of assets per year....
CHIPOTLE MEXICAN GRILL $79.27 (New York symbol CMG.B; SI Rating: Speculative) (303-595-4000; www.chipotle.com; Shares outstanding: 33.8 million; Market cap: $2.7 billion) is a Denver-based Mexican-restaurant chain. Founded in 1993, Chipotle (pronounced chi-POATlay) charges slightly higher prices than fast-food chains, but offers higher-quality food, including naturally raised meat, and better decor and service. In the three months ended June 30, 2009, Chipotle’s revenue rose 14.1%, to $388.8 million from $340.8 million a year earlier....
BIRCHCLIFF ENERGY $8.25 (Toronto symbol BIR; SI Rating: Speculative) (403-261-6401; www.birchcliffenergy.com; Units outstanding: 112.8 million; Market cap: $1.0 billion) develops, produces and explores for oil and natural gas, mainly in the Peace River Arch area near the Alberta/B.C. border. In the three months ended June 30, 2009, Birchcliff’s production rose 18.1%, to 11,313 barrels of oil equivalent per day (this measurement includes natural gas) from 9,583 barrels a year earlier. Despite this, the company’s cash flow per share fell 51.4%, to $0.18 from $0.37 a year earlier. That’s mainly because of sharply lower oil and natural-gas prices....
DOREL INDUSTRIES $28.99 (Toronto symbol DII.B; SI Rating: Extra Risk) (514-731-0000; www.dorel.com;Shares outstanding: 33.4 million; Market cap: $968.3 million) reports that its revenue fell 7.2 % in the three months ended June 30, 2009, to $551.1 million from $593.7 million a year earlier. (All figures except share price in U.S. dollars.) The revenue drop was mainly caused by a stronger U.S. dollar, which hurt the contribution of foreign sales. Earnings improved on falling raw-material costs. The company has also been cutting its expenses. Despite the lower revenue, earnings, excluding one-time items, rose 7.4%, to $1.01 a share from $0.94 a year earlier....
Natural-gas prices are up 48.3%, to $3.56 U.S. per thousand cubic feet, after falling to a low of $2.40 in early September. Producers have cut back on drilling in response to lower prices. This has lowered inventories. As well, an improving economy is lifting demand. Gas-weighted Cimarex and Devon trade at reasonable multiples to their forecast cash flows, based on today’s prices. Both have low debt and steady development spending. This puts them in a good position to prosper, even if natural-gas prices falter. CIMAREX ENERGY $43.10 (New York symbol XEC; SI Rating: Extra Risk) (303-295-3995; www.cimarex.com; Shares outstanding: 83.4 million; Market cap: $3.6 billion) is an oil and gas explorer and producer that mainly operates in the U.S. Natural gas makes up 70% of its production....