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
On the Thursday before Thanksgiving, the S&P 500 index fell below its low in the 2000-2002 bear market. That left it 52% below its peak, and at its lowest level since 1997. Some chart enthusiasts took this to mean that a much bigger drop lies ahead. My view is that if you pay any attention to chart analysis, you need to put it in context. Doing that takes a lot of the sting out of today’s situation. For one thing, after hitting a low that scares chartists, the market may abruptly reverse course, as it did following the October, 1987 market crash. Instead of continuing to plunge as some feared, the market turned upward and returned to its old highs and beyond....
Wal-Mart’s sales and earnings have jumped by over 70% since the last economic downturn in 2001. Despite this growth, the stock’s p/e has dropped to around 16 from 35. That’s mainly because the stock stayed in narrow range, as rising prosperity prompted shoppers to switch to more upscale stores. Now that the economy is slowing, Wal-Mart’s low prices will once again help it attract more middle-class shoppers. As well, the company is steadily improving the quality of the merchandise it carries. That should help it hang on to many of these new customers when the economy improves. Wal-Mart’s expanding international operations also add to its long-term appeal. WAL-MART STORES INC. $57 (New York symbol WMT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 3.9 billion; Market cap: $222.3 billion; WSSF Rating: Above average) is the world’s largest retailer with over 7,400 stores in the United States and 13 other countries. It serves over 175 million customers each week....
GREY ISLAND SYSTEMS INTERNATIONAL $0.23 (Toronto symbol GIS; SI Rating: Speculative) (877-434-4844; www.interfleet.com; Shares outstanding: 73.9 million; Market cap: $16.6 million) is an Internet-based automated vehicle location and mobile data services provider for the fleet management market. Grey Island’s InterFleet product features a live map display of entire fleets of vehicles. The company’s NextBus technology uses GPS and wireless communications to predict arrival times for riders. NextBus is in use by over 40 transit systems across North America. In the three months ended June 30, 2008, Grey Island’s revenues rose 50.1%, to $5.8 million from $3.8 million a year earlier. The company earned $440,795 or $0.005 a share, compared to a loss of $336,682 or $0.004. Grey Island had positive cash flow of $777,879 or $0.009 a share in the latest quarter, The company holds cash of $11.3 million or $0.15 a share, and has almost no debt....
CHESAPEAKE ENERGY $19.30 (New York symbol CHK; SI Rating: Extra risk) (405-848- 8000; www.chkenergy.com; Shares outstanding: 601.0 million; Market cap: $11.6 billion) plans to sell a 32.5% stake in its Marcellus shale gas acreage in the eastern U.S. to Norway’s Statoil- Hydro for $3.38 billion. StatoilHydro will initially pay $1.25 billion in cash, and then pay $2.13 billion to fund 75% of drilling costs between 2009 and 2012. The deal transaction covers 1.8 million acres of land. The two companies also formed a strategic alliance to jointly develop unconventional gas reserves in China, Ukraine and Romania. The $1.25 billion in cash will help Chesapeake meet its capital spending plans next year. It also puts it well on its way to meeting its goal of having $3 billion in cash by year-end. Chesapeake currently has about $1.2 billion in cash on hand....
COMPTON PETROLEUM $1.25 (Toronto symbol CMT; SI Rating: Speculative) (403-237-9400; www.comptonpetroleum.com; Shares outstanding: 130 million; Market cap: $162.5 million) has dropped its plan to sell the company. In February, 2008, Compton initiated a strategic review in response to repeated requests from its largest shareholder, New York-based private equity firm Centennial Energy Partners. Centennial holds a 19.8% interest in Compton. In June, 2008, the company followed the recommendation of the strategic review and put itself up for sale. Compton failed to receive what it regarded as an acceptable offer. Problems in credit markets, combined with falling natural gas prices have made it difficult for rivals to make acquisitions. More than 85% of Compton’s production is natural gas. Compton’s debt is high at $708 million, or almost three times its market cap of $179.3 million. The company will need to continue to use some of its cash flow to pay down debt. So it will spend less on exploration next year. That will likely result in lower production....
TEMPUR-PEDIC $5.91 (New York symbol TPX; SI Rating: Speculative)(800-878-8889; www.tempurpedic.com; Shares outstanding: 74.8 million; Market cap: $442.3 million) reports that in the three months ended September 30, 2008, earnings fell 38%, to $24.1 million, or $0.32 a share, from $38.8 million or $0.50 a share a year earlier. Sales fell 14%, to $252.7 million from $294.1 million. Tempur-Pedic has suspended its $0.08 quarterly dividend to conserve cash and pay down debt. Long-term debt of $518.8 million represents 87% of market cap. The company holds $87.7 million or $1.17 a share in cash. Tempur-Pedic needs an economic recovery to show renewed growth in sales and profits. However, it enjoys strong brand recognition and a broad lineup of products....
ATLANTIC TELE-NETWORK $18.61 (Nasdaq symbol ATNI; SI Rating: Speculative) (340-777-8000; www.atni.com; Shares outstanding: 15.2 million; Market cap: $282.9 million) gets 57% of its revenue from its 80% interest in Guyana Telephone and Telegraph Company (GT&T). The rest comes from its wireless interests in the Caribbean and its expanding telecom interests in the United States. GT&T is the sole local, long distance and international telephone service provider in Guyana, on the northeast coast of South America. Atlantic also owns Choice Communications, which offers wireless services in the U.S. Virgin Islands. Atlantic’s other interests in the Caribbean include 58% of Bermuda’s largest provider of cellular voice and data services. Atlantic continues to expand in the U.S. through Commnet Wireless, which provides voice and data wireless roaming services for U.S. and international carriers in rural areas in the United States. As well, its SoVerNet subsidiary provides wireline voice and data services to businesses and homes in New England....
NORTHBRIDGE FINANCIAL CORP. $31 (Toronto symbol NB; SI Rating: Speculative) (416-366- 9544; no web site; Shares outstanding: 47.7 million; Market cap: $1.5 billion) is one of the largest commercial property and casualty insurers in Canada. This includes commercial businesses, homes and vehicles. Around 88% of Northbridge’s business is with commercial clients and 12% is in personal lines. Commercial lines are the most profitable part of the insurance business and are Northbridge’s main focus. In the three months ended September 30, 2008, Northbridge’s revenues rose 34.9%, to $442.9 million from $328.4 million a year earlier. Earnings rose 38.4%, to $74.6 million from $53.9 million. Earnings per share rose 43.4%, to $1.52 from $1.06 on 3.2% fewer shares outstanding. In the latest quarter, investment gains jumped to $125.2 million from $16.4 million a year earlier, boosting revenues and earnings. The increase was primarily due to $94.4 million in gains from timely investments in credit default/equity index swaps....
GARMIN $15.98 (Nasdaq symbol GRMN; SI Rating: Speculative) (913-397-8200; www.garmin.com; Shares outstanding: 202.5 million; Market cap: $3.2 billion) reports that in the three months ended September 27, 2008, earnings per share excluding one-time items fell 3.3%, to $0.88 from $0.91 a year earlier. Sales rose 19.4%, to $870.4 million from $728.7 million. In the latest quarter, North American sales rose 29%, Europe was up 9% and Asia fell 21%. Intense price competition hurt profits. Garmin has cash and marketable securities of $539.6 million or $2.60 a share, and no debt. The stock now trades at just 4.2 times next year’s forecast earnings of $3.84 a share. The company’s launch of its new Nuvifone smartphone is now set for the first half of 2009....
20-20 TECHNOLOGIES INC. $2.40 (Toronto symbol TWT; SI Rating: Speculative) (514-332 -4112; www.2020technologies.com; Shares outstanding: 18.9 million; Market cap: $45.5 million) is expanding into the Chinese market with new CAD/CAM (computer assisted design/ computer assisted manufacturing) software specifically built for interior design and furniture manufacturers. Every element of the software is available in Chinese. Chinese furniture manufacturers will be able to design, manufacture, sell and manage their operations on a digital data system. The software also lets those manufacturers create 3D electronic catalogs. They can also use 20-20’s Virtual Planner, which lets customers electronically design and plan their furniture. 20-20 Technologies is still a hold.