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
Investors today often focus on two key questions: When is the market likely to turn around and start to rise again, and which stocks are likely to lead the way upward? On the first question, my view is that the rise could start any time from now through May. Many stocks are cheap at current prices, even in view of the earnings decline they are likely to suffer in the coming year. Many offer high yields, and have plenty of cash flow to keep paying dividends, even in the difficult economy that’s likely in 2009. But the market often overshoots — goes further (up or down) than you’d reasonably expect. So the downturn could drag on into the spring. As for the second question, I feel it’s risky to hold a strong view. That might lead you to bet too heavily on whatever you see as the sector most likely to lead the market in 2009. If you do that, you take on a needless risk that you’ll guess wrong. You could wind up losing money on your mistaken choice, even if the market averages soar....
In the early 1990s, IBM began to lose its decades-long dominance over the computer industry to newer companies like Microsoft (software) and Intel (chips). That prompted the company to focus on selling its expertise. It subsequently sold most of its less profitable operations, including its home computer division. This transformation continues to pay off. Demand for computer services tends to be more stable than other aspects of the computer industry, even in today’s volatile economy. That’s because IBM’s services help businesses cut costs and improve productivity. The stock now trades for less than 10 times earnings. That’s less than half its p/e of around 25 during the last recession in 2001....
HECLA MINING COMPANY $2.23 (New York symbol HL; SI Rating: Extra risk) (208-769-4100; www.hecla-mining.com; Shares outstanding: 169.5 million; Market cap: $378.0 million) explores for, mines and processes silver and gold in the U.S. and Mexico. Earlier this year, the company paid Rio Tinto plc $750 million for the 70.3% interest in the Greens Creek mine in Alaska that it didn’t already own. Greens Creek is the fifth-largest silver mine in the world. Hecla expects to produce 9 million ounces of silver in 2008, mostly from the Greens Creek mine and its 100%-owned Lucky Friday mine in Idaho. Production should rise to over 10 million ounces next year....
NORTHBRIDGE FINANCIAL CORP. $38.80 (Toronto symbol NB; SI Rating: Speculative) (416-366-9544; no web site; Shares outstanding: 47.7 million; Market cap: $1.9 billion) jumped over 25% recently after Fairfax Financial Holdings, symbol FFH on Toronto announced that it will make an offer to acquire the shares of Northbridge it does not already own. Fairfax hopes to complete the transaction in the first quarter of 2009. Fairfax, which currently has a 63.1% interest in Northbridge, is offering $39 a share in cash for a total of $686 million to obtain the 36.9% interest outstanding. We recommended Northbridge as a buy at $31 in the most recent issue of Stock Pickers Digest. That’s when we pointed out that the chance of a Fairfax takeover of the company added to its appeal....
Junior resources stocks have been particularly hard hit lately, not just by falling commodity prices, but also by investor fears that they won’t be able to continue to raise financing for exploration and development. Here are four penny stocks that all have promising prospects, as well as cash to sustain their operations. We think they have a better-than-average chance of long-term success. MIRANDA GOLD $0.23 (Toronto symbol MAD; SI Rating: Start up) (604-689-1659; www.mirandagold.com; Shares outstanding: 44.9 million; Market cap: $10.1 million) is a gold exploration company focused mostly in Nevada....
These two stocks now trade at low multiples to cash flow based on the 12 months to September 30, 2008. However, oil and gas prices have fallen sharply since the end of the third quarter, which will cut their cash flow in the fourth quarter. This trend will likely continue into next year. Nevertheless, with their low debt and high development spending, both are well-positioned to withstand lower prices. CIMAREX ENERGY $27.96 (New York symbol XEC; SI Rating: Extra risk) (303-295-3995; www.cimarex.com; Shares outstanding: 83.3 million; Market cap: $2.3 billion) is an oil and gas explorer and producer primarily focused in western Oklahoma, Kansas, the upper Gulf Coast areas of Texas and South Louisiana, the Permian Basin area of West Texas, plus the Gulf of Mexico....
NISSAN MOTOR CO. $6.87 (Nasdaq symbol NSANY; SI Rating: Above-average) (310-771-3111; www.nissanmotors.com; Shares outstanding: 2.3 billion; Market cap: $15.5 billion) has formed a partnership with the state of Oregon and Portland General Electric to develop a network of electric vehicle charging stations located throughout the utility’s service area. Powered by solar electric panels, these stations will sell electricity for owners of electric vehicles to recharge. The stations may be located at existing service stations to cut costs. Nissan will make available a supply of zero-emission vehicles to the state of Oregon, and promote the development of the network. Nissan Motor is still a buy....
SYMANTEC CORP. $13.39 (Nasdaq symbol SYMC; SI Rating: Average) (1-408-517-8000; www.symantec.com; Shares outstanding: 836.0 million; Market cap: $11.2 billion) has launched a gaming edition of its Norton AntiVirus 2009. Gaming includes activities such as online poker and other card games, as well as a wide variety of online video games. The Norton gaming edition lets gamers suspend updates, alerts and other background activities which could interrupt games or slow down their computers during gameplay. The Norton software also guards against malware and viruses. The Norton AntiVirus 2009 gaming edition retails for $39.99 U.S. Symantec is still a buy.
TRIMBLE NAVIGATION $21.77 (Nasdaq symbol TRMB; SI Rating: Speculative) (408-481-6914; www.trimble.com; Shares outstanding: 119.5 million; Market cap: $2.6 billion) makes GPS devices and technology for four main markets: Engineering and construction; Agriculture GPS products; Fleet products to track moving vehicles; and GPS components for major customers around the world. Trimble’s revenues in the three months ended September 30, 2008 rose 10.8%, to $328.1 million from $296 million. Earnings per share rose 39.1%, to $0.32 from $0.23. (All figures in U.S. dollars.) Debt of $51.5 million is a reasonable 43% of market cap. Trimble spends a high 11% of sales on research. Trimble is still a buy for aggressive investors....
AMERICAN WOODMARK $16.47 (Nasdaq symbol AMWD; SI Rating: Speculative) (540- 665-9100;www.americanwoodmark.com; Shares outstanding: 14.0 million; Market cap: $231.4 million) reported a loss of $0.03 a share in the three months ended October 31, 2008, compared to a profit of $0.08 a share a year earlier. Consensus forecasts were for a loss of $0.06 a share. Sales fell 15.8%, to $134.9 million from $160.2 million. American Woodmark expects tighter credit conditions and falling housing prices to continue to hurt remodeling and new construction markets. Earnings could suffer until housing markets recover. American Woodmark pays a quarterly dividend of $0.09 a share, which currently yields 2.2%. The company holds $60.4 million or $4.29 a share in cash and has low long-term debt....