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.
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Growth Stocks Library Archives
GANNETT CO. INC. $8.10 (New York symbol GCI) expects that its revenue for 2008 will fall 8% from 2007, as lower advertising and circulation revenue at its newspapers more than offset gains at its TV and Internet businesses. The company will continue to cut costs at its newspaper operations, and use the savings to expand its faster-growing online operations. Lower capital spending will also help it cope with the current downturn. Buy. THE BOEING CO. $41 (New York symbol BA) has increased its quarterly dividend by 5.0%, from $0.40 a share to $0.42. It now yields 4.1%. Buy. PROCTER & GAMBLE CO. $61 (New York symbol PG) hoped to increase its revenue by 4% to 6% in its second fiscal quarter ending December 31, 2008. However, it will probably fall short of that goal as retailers cut inventories in the face of slowing sales. Still, Procter is one of the world’s largest advertisers, and it is now using its clout to negotiate lower ad rates. Buy.
H.J. HEINZ CO. $39 (New York symbol HNZ; Income Portfolio, Consumer sector; Shares outstanding: 314.4 million; Market cap: $12.3 billion; WSSF Rating: Above average) makes a wide variety of processed foods, including condiments, sauces, soups, baked beans, pastas and infant food. Its flagship product, Heinz Ketchup, accounts for about 60% of U.S. ketchup sales. The company continues to focus on expanding its main brands, including Ore-Ida (frozen potatoes), Classico (pasta sauces) and Weight Watchers (diet foods). Its top 15 brands each generate annual sales of over $100 million, and together supply 70% of Heinz’s total sales.
Research push should pay off
As part of this plan, Heinz will increase its annual research and marketing spending by 8% to 12% over the next few years. The company must write off this spending as an ordinary expense, which hurts its earnings. However, Heinz feels these investments will increase its annual sales by at least 6% and expand earnings per share by 8% to 11% per year....
APACHE CORP. $74 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 334.7 million; Market cap: $24.8 billion; WSSF Rating: Average) has significant offshore operations in the Gulf of Mexico. These platforms cost more to operate than land-based wells. Lost production due to hurricanes also adds risk. Still, Apache’s per-share earnings before one-time items rose 47.0% in the third quarter of 2008, to $3.19 from $2.17 a year earlier, thanks to higher oil and natural gas prices. Revenue grew 34.3%, to $3.4 billion from $2.5 billion. Apache uses acquisitions to replenish its reserves. It holds cash of $1.6 billion or $4.90 a share, and lower oil prices should make purchases more affordable. As well, long-term debt of $3.9 billion is equal to about six months’ cash flow. However, falling energy prices could offset the benefits of any extra production. Apache is still a hold.
TENNANT CO. $25 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.3 million; Market cap: $457.5 million; WSSF Rating: Average) earned $0.57 a share in the three months ended September 30, 2008, up 29.5% from $0.44 a year earlier. These figures exclude non-recurring items. Revenue grew 15.3%, to $185.9 million from $161.3 million, thanks to acquisitions and higher selling prices for its products. Tennant continues to successfully launch new floor cleaning products. New products supplied 43% of its revenue to date in 2008, far above its goal of 30%. The company also continues to expand internationally, which cuts its risk. Revenues from outside of North America accounted for 42.3% of sales in third quarter, up from 35.1% a year earlier. Tennant is a buy....
TERADATA CORP. $15 (New York symbol TDC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 176.0 million; Market cap: $2.6 billion; WSSF Rating: Average) makes computers and software that capture and store large quantities of a business’s data, such as its sales and inventory. Analyzing this data for trends helps its clients expand their profits. Teradata’s earnings before unusual items in the third quarter of 2008 rose 24.1%, to $0.36 a share from $0.29 a year earlier. The gain was largely due to a greater number of high-profit-margin contracts. Revenue was unchanged at $439 million, as a rise in service revenue offset a drop in hardware sales. Services now supply 52% of its total revenue. Teradata continues to spend 6% of its revenue on research, so it’s more profitable than is appears. It’s also debt free, and holds cash of $378 million or $2.15 a share. Teradata is a buy.
These two companies provide detailed information to investors that help them make better decisions. Both stocks have dropped sharply in the past few months, partly due to fears that new government regulations could drive up their costs. Despite the problems in the credit markets, we still like their long-term outlook. Both are controlling costs, and diversifying into new areas. They also own the top brands in their fields. We now see Moody’s and Dun & Bradstreet as buys for long-term gains. MOODY’S CORP. $22 (New York symbol MCO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 239.8 million; Market cap: $5.3 billion; WSSF Rating: Average) provides independent credit ratings and other information on bonds and other securities. It also provides credit assessment services to banks and other lenders....
PHILIPS ELECTRONICS N.V. ADRs $20 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 972.4 million; Market cap: $19.4 billion; WSSF Rating: Average) makes consumer electronic products, such as TV sets, DVD players and kitchen appliances (roughly 50% of revenue). The company also makes lighting equipment (25%) and high-end medical equipment (25%). Each American Depository Receipt represents one Philips common share. Due to the slowdown in consumer spending, Philips plans to speed up its current restructuring plan. It now expects to report charges of roughly 1.3 billion Euros in the fourth quarter of 2008 (1 Euro = $1.44 U.S.). These charges include writedowns of Philips’ holdings in companies that make computer chips and flat-panel TV screens. To put these costs in context, Philips earned 347 million Euros in the three months ended September 30, 2008, up slightly from 346 million Euros a year earlier. However, earnings per share grew 19.4%, to 0.37 Euros from 0.31 Euros, on fewer shares outstanding. Revenue fell 2.0%, to 6.3 billion Euros from 6.5 billion Euros....
DIEBOLD INC. $28 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 66.1 million; Market cap: $1.9 billion; WSSF Rating: Average) earned $1.16 a share before unusual items in the three months ended September 30, 2008, up 146.8% from $0.47 a year earlier. Revenue grew 20.2%, to $890.3 million from $740.9 million. The higher earnings and revenue were mainly due to a large order from China for automated teller machines (ATMs). An election in Brazil also increased revenue at Diebold’s voting machine division. Diebold has shifted much of its manufacturing operations to Hungary and China, which should cut costs and expand its long-term profitability. However, banking turmoil could hurt demand for new ATMs and security systems in 2009. Diebold is a hold.
BANK OF AMERICA CORP. $15 (New York symbol BAC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.0 billion; Market cap: $75.0 billion; WSSF Rating: Average) aims to complete its $20 billion, all-stock acquisition of brokerage firm Merrill Lynch & Co. Inc. by the end of 2008. The purchase will make Bank of America one of the world’s biggest financial services companies. Following the purchase, Bank of America plans to cut its combined workforce by 10%. The company did not reveal how much this restructuring would cost. However, the recent sale of $25 billion worth of preferred shares to the U.S. Treasury should help offset these charges. Bank of America may also have to cut its $1.28 dividend (8.5% yield) to help pay for Merrill Lynch. Even if the company cut the dividend in half, it would still yield over 4%. Bank of America is a buy.
Demand for medical equipment tends to grow or at least hold steady, regardless of swings in the overall economy. Recurring revenues, mainly from long-time customers, should let these four makers of medical equipment and supplies keep expanding their sales and earnings. They also face little competition from generic products. As well, all four are expanding internationally, which cuts their long-term risk. C.R. BARD INC. $82 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 99.2 million; Market cap: $8.1 billion; WSSF Rating; Above average) makes medical devices in four main areas: Vascular products such as stents and catheters (25% of 2007 sales); Urology products such as drainage and incontinence devices (30%); Oncology products that detect and treat various types of cancer (25%); and Surgical Tools and other products (20%)....