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
BRIGGS & STRATTON CORP. $15 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 49.8 million; Market cap: $747 million; Price-to-sales ratio: 0.3; WSSF Rating: Above Average) is the world’s largest maker of engines for lawnmowers. Briggs gets 60% of its revenue from these operations; it gets the remaining 40% by making other home and garden tools, like pressure washers and snow blowers. As a result of the recession, lawnmower makers have cut their orders for new engines, particularly larger engines for riding mowers. Briggs makes more money on these engines than on smaller ones, so this hurt’s the company’s earnings. In its third fiscal quarter, which ended March 31, 2009, Briggs’s earnings fell 34.6%, to $25.4 million, or $0.51 a share, from $38.9 million, or $0.78 a share, a year earlier. Higher income taxes contributed to the earnings drop. Due to the timing of certain events, Briggs’s tax rate rose to 31.4% from 18.3% a year earlier. However, the company’s tax rate for the full fiscal year will drop to a more normal level of around 25%....
The recession has hurt banks’ ability to invest in new automated teller machines (ATMs). However, ATMs will continue to play a major role in many banks’ operations, particularly in developing countries. Rising demand for better security will also prompt banks to upgrade their ATMs. Based on these factors, we feel Diebold and NCR are well positioned to increase their earnings when the economy rebounds. DIEBOLD INC. $26 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 66.2 million; Market cap: $1.7 billion; Price-to-sales ratio: 0.6; WSSF Rating: Average) is one of the world’s leading makers of ATMs. The company also makes safes, vaults, building-security systems and electronic-voting machines. Diebold continues to lower its risk by cutting its reliance on ATMs. Lately, it has been offering its banking customers more services, including managing ATM networks, processing transactions and upgrading software. Services like these now account for over half of its revenue....
WASHINGTON FEDERAL INC. $12 (Nasdaq symbol WFSL; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 88.1 million; Market cap: $1.1 billion; Price-to-sales ratio: 2.9; WSSF Rating: Average) earned $8.4 million, or $0.10 a share, in its second fiscal quarter, which ended March 31, 2009. That’s a 76.3% drop from its year-earlier earnings of $35.5 million, or $0.40 a share. Washington Federal raised its loan-loss provisions during the quarter, to $54 million from $9.5 million a year earlier. This was the main reason for the decline. Moreover, the bank warns that rising defaults on residential and commercial mortgages will keep its loss provisions at a high level in its third fiscal quarter. Washington Federal is a hold.
MASTERS ENERGY, $1.92, Toronto symbol MSY on Toronto, has become the target of a second takeover offer. This week, Sun Century Petroleum, a Calgary-based private company, offered $1.95 a share in cash for each Masters share. On March 2, 2009, Masters received a friendly takeover offer from ZARGON ENERGY TRUST ($16.10, symbol ZAR.UN on Toronto). Zargon is offering Masters’ shareholders a cash option and a units-plus-cash option. Under the cash option, Zargon will pay $1.83 for each Masters common share tendered until it reaches its maximum cash payout. Any remainder will be paid in Zargon units. Under the second option, each Masters common share may be exchanged for 0.12 of a Zargon unit. This option will also be pro-rated according to Zargon’s unit and cash maximums....
BROADRIDGE FINANCIAL SOLUTIONS INC. $19 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 140.4 million; Market cap: $2.7 billion; Price-to-sales ratio: 1.2; WSSF Rating: Extra Risk) sells investor communications, securities-processing and transaction-clearing services to the investment industry. The company has launched a new web site (www.theinvestornetwork.com) that lets investors discuss a wide variety of topics, but they have to register through their broker to participate. This limits fraudulent posts aimed at inflating stock prices, the company says, but is also apt to please Broadridge’s broker-clients. Broadridge also plans to let companies use this site to supplement their annual meetings. This will help them cut their investor-relations costs. Broadridge is a buy....
CEDAR FAIR L.P. $9.95 (New York symbol FUN; Income Portfolio, Consumer sector; Units outstanding: 55.6 million; Market cap: $553.2 million; Price-to-sales ratio: 0.6; WSSF Rating: Average) has cut its quarterly distribution by 47.9%, to $0.25 a unit from $0.48. The new annual rate of $1.00 yields 10.1%. The cut should help the partnership pay down $200 million of its $1.8 billion long-term debt over the next three years. In order to pay down more debt, Cedar Fair is looking at selling its amusement parks in Minneapolis, Kansas City and Santa Clara, California. It also wants to sell some land near Cleveland and Toronto. The recession will probably limit interest in these properties, but Cedar Fair’s eight remaining parks should continue to generate enough cash flow to let it meet its obligations. Cedar Fair is a buy.
INTEL CORP. $16 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.6 billion; Market cap: $89.6 billion; Price-to-sales ratio: 2.6; WSSF Rating: Above Average) is the world’s largest maker of computer chips, with about 80% of the market. Computer makers Dell and Hewlett-Packard are Intel’s main customers, and accounted for 38% of its 2008 revenue. The recession has hurt computer sales. This, in turn, has lowered demand for Intel’s chips. Moreover, customers are switching to cheaper computers, including “netbooks,” which are smaller than traditional laptops and have less-powerful processors. Intel earns smaller profits on chips for netbook computers than from regular desktops and laptops.
Sales, earnings still below 2005 highs
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TEXAS INSTRUMENTS INC. $16 earned $0.01 a share in the first quarter of 2009, down sharply from $0.49 a year earlier. Sales fell 38.1%, to $2.1 billion from $3.3 billion. The company makes chips for cellphones and other devices, and the recession has hurt sales of these products. However, the latest results beat analysts’ expectations of a loss of $0.02 a share on sales of $1.9 billion. Buy. TIM HORTONS INC. $24 has increased its quarterly dividend by 11.1%. The new annual rate of $0.40 (Canadian) yields 1.3%. The company also plans to buy back up to 5% of its outstanding shares this year. Buy. MACY’S INC. $13 reported that its March same-store sales fell 9.2% from a year earlier. That’s worse than the 8.8% drop analysts had expected. However, online sales rose 17.9%. Macy’s is also lowering its costs, including a 4% cut to its workforce. These savings, and its well-known brands (Macy’s and Bloomingdale’s), should help it weather the recession. Buy.
PEPSICO INC., $48.52, New York symbol PEP, makes soft-drink syrup, which its sells to its authorized bottlers. The bottlers then make the finished product and distribute it to retailers. This week, PepsiCo announced that it plans to buy its two main bottlers: Pepsi Bottling Group Inc. (New York symbol PBG) and PepsiAmericas, Inc. (New York symbol PAS). The takeover will cost PepsiCo roughly $6 billion in cash and shares, but it would let the company consolidate plants and administrative functions. PepsiCo’s management feels this would save $200 million a year, and increase annual earnings by $0.15 a share. Both bottlers’ shareholders must agree to the takeover. However, both stocks are trading above the value of PepsiCo’s offer. That suggests shareholders expect a higher bid, but the takeover will probably succeed. That’s because PepsiCo already owns 33% of Pepsi Bottling Group and 43% of PepsiAmericas, and its dominant position limits their appeal to other potential bidders....
ALIMENTATION COUCHE-TARD $12.65 (Toronto symbol ATD.B: SI Rating: Extra Risk) (1-800-361-2612; www.couche-tard.com; Shares outstanding: 193.1 million; Market cap: $2.4 billion) is the largest convenience-store operator in Canada, with over 2,000 outlets. It also has more than 3,000 U.S. stores in 28 states. Grocery retailer Metro Inc. owns 10.3% of Couche-Tard. The Canadian stores operate under the Couche- Tard and Mac’s banners, while the U.S. stores mainly use the Circle K banner. Couche-Tard sells fuel at 65% of its 4,000 company-owned stores. It also has about 4,175 Circle K licensed stores, primarily in Asia. In the three months ended February 1, 2009, earnings rose 40.8%, to $71.1 million from $50.5 million a year earlier. (All figures except share price in U.S. dollars.) Earnings per share rose 48%, to $0.37 from $0.25 on 4.4% fewer shares outstanding. Higher-than-expected same-store sales (excluding fuel) were behind the gains. Lower gas prices drove down revenue by 14.8%, to $3.9 billion from $4.6 billion....