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
VERIZON COMMUNICATIONS INC., $29.61, New York symbol VZ, plans to merge parts of its local-phone operations in 14 states with those of Frontier Communications Corp. (New York symbol FTR). As a result, Verizon shareholders will get one Frontier share for roughly every 4.2 Verizon shares. The company will finalize the exact exchange ratio just prior to the merger. This is a tax-deferred distribution, so investors will only be liable for capital-gains taxes on their new Frontier shares when they sell them. Verizon shareholders will control 68% of the new company. Verizon itself will get $3.3 billion in cash and debt securities. It will probably use the cash to pay down its $55.7-billion long-term debt, which is equal to 66% of its market cap. The assets that Verizon will spin off mainly consist of 4.8 million land lines in rural areas. As of March 31, Verizon had 35.2 million land lines in 25 states. The deal, which will probably close sometime next year, will make Frontier the fifth-largest local phone service provider in the U.S., with 7.1 million lines in 27 states....
MASTERS ENERGY, symbol MSY on Toronto, has officially been taken over by ZARGON ENERGY TRUST, $15.95, symbol ZAR.UN on Toronto. Zargon was able to get a majority of Masters’ shareholders to vote in favour of its cash-and-unit offer at a meeting last week. Masters shareholders will get $0.37 a share in cash, plus 0.0957 of a Zargon unit. (The unit portion is based on the 1.475 million new units Zargon is issuing as part of the offer.) At Zargon’s current price, that’s worth a total of $1.90 per Masters share, a gain of over 64% from before the offer. In all, buying Masters will cost Zargon $41.4 million. Masters will add 1,275 barrels of oil equivalent per day to Zargon’s production. Zargon now expects its production to average 10,200 barrels per day this year....
BANK OF AMERICA CORP., $14.17, New York symbol BAC, rose over 50% this week despite the fact that it needs to raise $33.9 billion in additional capital to satisfy government regulators. That’s equal to 37% of the bank’s $90.7-billion market cap. The Federal Reserve has evaluated the 19 largest U.S. banks to see how well they would cope if unemployment continues to rise and home prices keep falling. Such an environment would surely produce higher loan losses, and the aim of this “stress test” is to identify the banks that would have the most difficulty absorbing these. Bank of America failed this test, so it will have to strengthen its balance sheet. There are a number of ways it could do this, including converting its preferred shares to common shares, although this would significantly dilute the holdings of its existing shareholders. As well, the U.S. government holds $45 billion worth of Bank of America’s preferred shares, so converting them to common shares would give the government more control over the bank....
WYNDHAM WORLDWIDE, $12.12, symbol WYN on New York, rose 35% this week after it reported higher first-quarter profits. In the three months ended March 31, 2009, Wyndham’s earnings, excluding one-time items, rose 19.4%, to $74 million, or $0.41 a share, from $62 million, or $0.35 a share, a year earlier. Analysts had been expecting $0.35 a share. Revenue fell 11%, to $901 million from $1.01 billion, as Wyndham’s hotels saw fewer guests. Moreover, the company gets about a third of its revenue from its overseas operations, and the higher U.S. dollar hurt their contribution. Despite the lower revenue, Wyndham’s profits were higher than in the year-earlier period. This was mainly because the company took steps to lower its costs, including its marketing and administrative expenses. Wyndham is one of the world’s largest hospitality companies, with 7,000 franchised hotels worldwide. It operates under a number of quality brands, including Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8, Wingate by Wyndham, Baymont Inn & Suites, Microtel Inns & Suites, Hawthorn Suites, Howard Johnson, Travelodge, Knights Inn and AmeriHost Inn....
VERIZON COMMUNICATIONS INC., $30.55, New York symbol VZ, reported this week that its revenue rose 11.6% in the three months ended March 31, 2009, to $26.6 billion from $23.8 billion a year earlier. This beat analysts’ forecasts of $26.3 billion. Most of this gain is the result of last January’s purchase of Alltel Corp., which sells wireless services mainly in the rural parts of 34 U.S. states. If you assume that Verizon acquired Alltel on January 1, 2008, Verizon’s revenue would have risen 3.3%. Verizon’s earnings gained 2.9%, to $1.8 billion from $1.7 billion a year earlier. Earnings per share rose 3.3%, to $0.63 from $0.61 on fewer shares outstanding. These figures exclude the cost of integrating Alltel....
When they think about investing in technology stocks, many people focus on growth. Tech stocks have produced a sizeable part of all stock-market profits in the past two decades, particularly in the late 1990s and the early part of this decade. However, it pays to keep a couple of easy-to-overlook facts about techs in mind: First, most techs, particularly hardware makers, are prime examples of stocks that belong in the Manufacturing & Industry sectors. This sector, along with Resources & Commodities, is the home of the market’s most volatile, cyclical stocks. Of course, many top techs are well-established companies with little debt. However, industry characteristics saddle them with high risk. Rapid change in products keeps the market highly competitive. Most techs need to spend heavily on research just to maintain their market share, let alone grow. Because of the rapid change, they need to spend heavily on updating their equipment and production. (This applies even if they farm out production to outside contractors — they pay one way or the other.)...
The original Dun & Bradstreet split itself into two separate companies in September 2000. From then till 2007, both stocks were terrific performers. Moody’s peaked at $76 in February 2007, while Dun & Bradstreet hit $108 in July 2007. Since then, the credit crisis, which took hold in 2008, has dampened their earnings and stock prices. As well, regulators are investigating the role rating agencies played in triggering the recession. The result could be greater restrictions on their operations, including the way they are paid. However, because rating firms provide independent, publicly available opinions, constitutional free-speech guarantees help protect them from shareholder lawsuits. We feel both firms will continue to profit from their well-established brands and large customer bases. Both are also cutting costs and expanding internationally....
FORD MOTOR CO. $4.28 (New York symbol F; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.8 billion; Market cap: $12 billion; Price-to-sales ratio: 0.1; WSSF Rating: Speculative) is in better shape than General Motors or Chrysler. The bankruptcy of one or the other would give Ford an opportunity to increase its market share, but it could force some auto-parts suppliers to go out of business. This would make it difficult for Ford to keep operating. The uncertainty surrounding GM and Chrysler has helped Ford’s sales in the past few weeks. As a result, the stock is up over fourfold from its November low of $1.01. Still, it will take several more years before Ford becomes profitable again. Ford is a hold, but only for highly aggressive investors.
APACHE CORP. $66 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 334.9 million; Market cap: $22.1 billion; Price-to-sales ratio: 1.8; WSSF Rating: Average) owns 52.5% of the Van Gogh offshore natural-gas field near western Australia. Apache had planned to begin production at Van Gogh later this year, but a fire on a key transport ship will probably delay this for a few months. Australia accounts for just 5% of Apache’s production, so this delay will only have a minor impact on the company’s earnings. Moreover, production at the Australian operations should rise this year now that Apache has repaired most of the damage caused by last June’s explosion at its Varanus Island natural-gas processing facility. Apache is a buy.
The slowdown in the automotive industry has hurt the earnings of these four companies, which serve a number of auto-dependent customers. The potential bankruptcy of General Motors and Chrysler is also a risk factor. However, all four are leaders in their niche markets, which gives them special appeal. Their strong balance sheets will also help them weather the recession. We see all four as particularly attractive buys for long-term gains. GENUINE PARTS CO. $34 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 159.4 million; Market cap: $5.4 billion; Price-to-sales ratio: 0.5; WSSF Rating: Average) distributes automotive replacement parts to over 4,700 independent outlets in North America. It also owns over 1,100 auto parts stores under the NAPA banner....