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
AMERICAN EXPRESS CO. $39 (New York symbol AXP; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $46.8 billion; WSSF Rating: Above average) has moved down in the past few weeks, as rising credit card default rates and slowing consumer spending have hurt its earnings. In the three months ended June 30, 2008, earnings fell 34.9%, to $0.56 a share (total $655 million) from $0.86 a share ($1.0 billion) a year earlier. However, revenue rose 8.7%, to $7.5 billion from $6.9 billion, due to strong growth at its international and business-to-business divisions. The company recently settled its anti-trust dispute with Master- Card Inc. Combined with its earlier settlement with Visa Inc., Amex will now receive $880 million a year for the next three years. This will help offset rising loan losses. A new cost-cutting plan will also improve its long-term profitability. American Express is a buy.
It’s generally a mistake to sell high-quality stocks just because their prices have dropped. Nor should you sell them just because they’ve gone out of investor favor. Well-established but out-of-favor stocks can provide great opportunities for patient investors. MCDONALD’S CORP. $62 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.1 billion; Market cap: $68.2 billion; WSSF Rating: Above average) provides an example: The stock fell over 23%, from around $64 in mid-December 2007 to $49 in January 2008, on fears that high gasoline prices and lower consumer confidence in the wake of the housing market slowdown would limit customer spending....
H&R Block recently sold its home mortgage and financial advisory operations. It now aims to grow by focusing on its two main businesses— tax preparation and accounting services. This strategy may limit H&R Block’s growth. However, we feel it will give the company steadier revenue and earnings, with much less risk. H&R BLOCK INC. $25 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 329.2 million; Market cap: $8.2 billion; WSSF Rating: Above average) is best known for its income tax return preparation business....
ADOBE SYSTEMS INC. $44.28 (Nasdaq symbol ADBE; SI Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 530.5 million; Market cap: $23.5 billion) develops, sells and supports computer software products and technologies that let users create paper documents, and create and manipulate electronic documents. It’s a leader in graphic arts and desktop publishing software. Adobe’s two main software products are Acrobat (electronic documents) and PhotoShop (photo editing). Both products dominate their respective markets. In the three months ended May 30, 2008, Adobe’s revenues rose 19.0%, to $886.9 million from $745.6 million. (All figures in U.S. dollars.) The increase came from strong sales of its Creative Suite 3 products and Acrobat software. Growing demand in Europe and Japan helped offset soft sales in North America. Earnings per share excluding one-time items rose 35.1%, to $0.50 from $0.37.
Plenty of funds for development
Adobe holds cash of $1.9 billion or roughly $3.45 a share. Debt of $350.0 million is a low 16% of its market cap of $21.6 billion. That gives it lots of room to finance new product development. The company spends a high 19% of sales on research....
WYNDHAM WORLDWIDE $17.85 (New York symbol WYN; SI Rating: Extra risk) (973- 753-6000; www.wyndhamworldwide.com; Shares outstanding: 177.5 million; Market cap: $3.2 billion) reports 2.9% higher revenues in the three months ended June 30, 2008, to $1.13 billion from $1.10 billion. Excluding one-time items, earnings per share rose 8.2%, to $0.53 from $0.49. Comparable revenue per available room rose 1.4%. In the latest quarter, results were boosted by strong growth from its international hotels, which offset weakness in the United States. Wyndham is one of the world’s largest hospitality companies. It owns 6,560 franchised hotels plus various other vacation resorts, rental properties, luxury clubs and timeshares. The company’s diverse exposure to the hospitality industry also gives it more consistent cash flow than most hotel management companies....
DUNDEEWEALTH INC. $14.33 (Toronto symbol DW; SI Rating: Speculative) (1-800-301-6745; www.dundeewealth.com; Shares outstanding: 119.0 million; Market cap: $1.7 billion) has completed its purchase of a 60% interest in Toronto-based pension fund manager Aurion Capital Management. DundeeWealth paid $6.5 million in cash and 1.4 million in shares for a total of $26 million. Aurion employees will retain 40% of the company. A portion of the payment (35%) will be withheld for three years to ensure the retention of key Aurion employees. DundeeWealth has also acquired an 89% interest in BHR Fund Advisors, a Philadelphia-based mutual fund manager and distributor, for an undisclosed amount of cash. BHR management will retain the remaining 11%. The two purchases broaden DundeeWealth’s investment management capabilities, and diversify its sales distribution network. DundeeWealth provides investment management, securities brokerage, financial planning and investment advisory services. Excluding Aurion’s assets, DundeeWealth manages $63.1 billion worth of assets....
PULSE DATA $2.85 (Toronto symbol PSD; SI Rating: Speculative) (403-237-5559; www.pulsedatainc.com; Sharesoutstanding: 53.8 million; Market cap: $153.4 million) reported a 3.8% rise in revenues in the three months ended June 30, 2008, to $10.9 million from $10.5 million a year earlier. Cash flow per share rose 23.1%, to $0.16 from $0.13. Pulse’s main business is seismic data licensing. It has built up a library of seismic research it licenses to third parties, mostly oil and gas companies. In May, 2008, Pulse Data sold its money-losing Terrapoint division (airborne digital mapping) for $6.5 million in cash to focus on its data business....
TOROMONT INDUSTRIES LTD. $31 (Toronto symbol TIH; SI Rating: Extra Risk) (416-667-5511; www.toromont.com; Shares outstanding: 65.1 million; Market cap: $2.0 billion) operates in two business segments: the Equipment Group and the Compression Group. The Equipment Group includes one of the world’s largest Caterpillar dealerships by revenue and geographic territory in addition to rental operations. Also part of this group is Toromont Energy. Toromont Energy supplies, constructs and operates high efficiency power plants of less than 50 megawatts, using Caterpillar’s power generation technologies. Toromont’s plants are mostly fueled by natural gas, but also by landfill gas, biogas and diesel fuel in remote locations. Toromont Energy has built more than 50 power plants in the past 15 years....
TEMPUR-PEDIC $10.02 (New York symbol TPX; SI Rating: Speculative)(800-878-8889; www.tempurpedic.com; Shares outstanding: 74.8 million; Market cap: $749.8 million) reports that in the three months ended June 30, 2008, earnings fell 38.6%, to $20.2 million from $32.9 million a year earlier. Earnings per share fell 32.5%, to $0.27 from $0.40 on fewer shares outstanding. Sales fell 7.4%, to $238.7 million from $257.6 million. In the latest quarter, international sales rose 3.6%, but U.S. sales fell 13%. Difficult economic conditions and lower consumer confidence have weakened demand for high-end mattresses. These are a discretionary item, at least in the short term. To address these challenges, Tempur-Pedic plans to launch less-expensive lines of mattresses, pillows, and other specialty bedding products next year. The company also continues to cut costs....
ACCORD FINANCIAL CORP. $7.00 (Toronto symbol ACD; SI Rating: Speculative) (416-961-0007; www.accordfinancial.com; Shares outstanding: 9.6 million; Market cap: $66.9 million) operates mainly in the factoring business in Canada and the U.S. Factoring is the purchase of a company’s accounts receivable at a discount. Accord profits by collecting the receivables. Besides factoring, Accord also offers other asset-based lending services. In the three months ended June 30, 2008, Accord’s revenues rose 4.6%, to $7.1 million from $6.8 million. Earnings rose 5.3%, to $1.8 million or $0.19 a share, from $1.7 million or $0.18 a share. Cash flow rose 19.8%, to $1.7 million or $0.18 a share, from $1.4 million or $0.15 a share. Accord’s shares yield 3.7%. Accord’s results will improve further along with the economy in both Canada and the U.S. The company is also benefiting from a tightening in the credit insurance industry....