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
IVERNIA INC. $0.12 (Toronto symbol IVW; SI Rating: Speculative)(416-867-9298; www.ivernia.com; Shares outstanding: 180.2 million; Market cap: $19.8 million) is still not able to sell ore from its Magellan lead mine in Western Australia. Ivernia was ordered to suspend production at the mine in April 2007, after the Port of Esperance blocked shipments due to bird fatalities from lead poisoning. Ivernia believes it has met all of the conditions required to allow the export of bagged and containerized lead concentrate through the Port of Freemantle. However, although regulatory agencies have approved the project, Ivernia is still waiting for the State of Western Australia’s Minister of Environment to make a final decision. The company holds $15.8 million or $0.09 a share in cash. Ivernia is still a hold, but only for aggressive Investors
STANTEC INC. $25.25 (Toronto symbol STN; SI Rating: Extra Risk) (780-917-7288; www.stantec.com; Shares outstanding: 45.4 million; Market cap: $1.1 billion) has signed a letter of intent to design the new terminal expansion at Edmonton International Airport. The project will increase capacity by about 50%.The expansion will add 13 new gates, additional retail, food and beverage space, while enhancing passenger flow. Airports are one of Stantec’s areas of specialization. Stantec will provide full design services, including the architectural, mechanical, electrical, structural and Leadership in Energy and Environmental Design (LEED) consulting services for the 40,000 square meters of new floor space....
AUTODESK, INC. $19.21 (Nasdaq symbol ADSK; SI Rating: Average) (515-507-5000; www.autodesk.com; Shares outstanding: 226.3 million; Market cap: $4.3 billion) makes AutoCAD, the world’s top-selling computer aided design program. About four million architects and engineers in over 100 countries use it to design and test new buildings and products. This business supplies nearly 90% of its revenue. The remainder comes from programs that filmmakers use to create special effects. Revenues in the fiscal third quarter ended October 31, 2008 rose 12.8%, to $607.1 million from $538.4 million, thanks to an acquisition, favorable exchange rates and strong sales in emerging markets. Sales of the company’s advanced 3D design software (27% of total revenues) also contributed to the higher results. Earnings per share excluding one-time items rose 13.6%, to $0.56 from $0.49. The stock now trades at 11.6 times next year’s forecast earnings of $1.65 a share. That’s reasonable in light of Autodesk’s growth prospects and high research spending....
The $50 billion Madoff affair no doubt qualifies as the swindle of the year for 2008, and rivals Enron in financial history. If so, let’s hope investors look closely to see where the money went. So far, media accounts reflect brokers’ views that Mr. Madoff’s stated investment strategy was sound, and that it only failed because he had too much money to manage. My view: only a broker could see it that way. The Madoff strategy involved buying high-quality stocks, while dabbling in stock options. In a rising market, this can cut volatility and produce steady returns for the client, while generating even steadier commission income for the broker. But the client’s returns will fall short of what you’d earn from simply buying stocks and staying out of options. The shortfall equals brokerage commissions, plus profits that options market-makers earn on each transaction....
FAIRFAX FINANCIAL HOLDINGS $360 (Toronto symbol FFH: SI Rating: Average) (416-367-2612; www.fairfax.ca; Shares outstanding: 16.9 million; Market cap: $6.1 billion) is a financial services holding company with assets of $27.9 billion. Fairfax engages in insurance, reinsurance and investment management. Prem Watsa is the chairman and founder of the company. Fairfax’s shares are high priced, but you can buy an odd lot of as few as 10 shares or so through any broker. Fairfax provides reinsurance through OdysseyRe and Group Re. Reinsurers provide insurance to insurers. Crum & Forster is Fairfax’s main U.S. insurance subsidiary, and Northbridge Financial is its principal subsidiary in Canada. Fairfax also sells insurance in Asia. Fairfax recently announced that it will acquire the 36.9% of Northbridge Financial not already held. Northbridge is a recommendation of Stock Pickers Digest. In the nine months ended September 30, 2008, Fairfax’s earnings jumped 112.8%, to $1.13 billion or $60.63 a share, from $532.2 million or $29.54 a share. The latest nine months included net gains on investments of $1.9 billion, offset by net catastrophe losses (including net losses related to Hurricanes Ike and Gustav) of $366.2 million....
ADOBE SYSTEMS INC. $22.13, symbol ADBE on Nasdaq, rose as high as $24 this week after reporting record earnings in the latest quarter. Excluding one-time items, earnings per share in the three months ended November 28, 2008 rose 22.4%, to $0.60 from $0.49 a year earlier. Revenues rose 0.5%, to $915.3 million from $911.2 million. In the latest quarter, slower than anticipated sales of Adobe’s new Creative Suite 4 software dampened sales. The stronger U.S. dollar also hurt Adobe’s revenues. The company now gets more than half of its revenues from outside the U.S., so a higher dollar lowers the contribution of foreign sales. In response to slower sales expected in 2009, Adobe will now cut 600 jobs (8% of its workforce) and reduce expenses such as travel costs. Adobe holds cash of $2 billion or $3.82 a share. Long-term debt of $350 million is a low 3% of its market cap of $11.5 billion. That gives the company plenty of room to finance new product development and to make small acquisitions. Adobe spends a high 16.7% of sales on research and development. The stock now trades at 12.6 times next year’s forecast earnings of $1.75 a share....
WACHOVIA CORP. $5.66, New York symbol WB, has settled a class-action lawsuit that aimed to block its upcoming takeover by WELLS FARGO & CO. $29.36, New York symbol WFC. The settlement of this lawsuit increases the likelihood that the takeover will proceed as planned. Wachovia stockholders will vote on the deal on December 23, 2008. If approved, they will receive 0.1991 of a Wells Fargo common share for each Wachovia share they currently hold. Wachovia investors should tender their shares to the Wells Fargo offer....
REITMANS, $9.50, symbol RET.A on Toronto, reports that earnings in the three months ended November 1, 2008 fell 16%, to $23 million or $0.33 a share from $27.4 million or $0.39 a share a year earlier. Sales rose 2.2%, to $271.2 million from $265.5 million. Same store sales fell 1.2%. In the latest quarter, consumer confidence continued to weaken due to financial market concerns and fears of a recession. That hurt sales and profits. The weaker Canadian dollar also dampened profits. Reitmans imports 80% of its merchandise, mainly from China. The company continues to maintain better inventory controls in order to bolster profits. Reitmans is Canada’s largest specialty woman’s wear retailer. The company holds $235.8 million or $3.33 a share in cash. It pays a $0.18 quarterly dividend, which currently gives it a 7.6% yield. Reitmans plans to buy back up to 2.9 million or 5% of its Class A shares in the next 12 months....
3M COMPANY $56.04, New York symbol MMM, fell roughly 7% this week after it warned that the slowing economy will hurt its earnings. As well, the company gets two-thirds of its earnings from overseas markets, and the higher U.S. dollar will dampen its overall growth. 3M now expects to report earnings of $5.10 to $5.15 a share for 2008, down from its earlier forecast of $5.40 to $5.48 a share. For 2009, 3M expects to earn between $4.50 and $4.95 a share. The stock trades at 11.9 times the midpoint of its 2009 range. The company also announced a new restructuring plan that should save it $170 million in 2009. That’s equal to about 5% of its annual earnings. The savings should let 3M continue to fund research (5% of revenue), and pursue acquisitions....
NORTHBRIDGE FINANCIAL CORP. $38.40, symbol NB on Toronto, rose over 26% this week 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....