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
NCR CORP. $27 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 167.5 million; Market cap: $4.5 billion; WSSF Rating: Average) continues to win new orders for its retail cash register and checkout systems. For example, the United States Postal Service has awarded NCR a new three-year, multimillion-dollar contract. NCR’s equipment will improve efficiency and cut waiting times at over 16,000 Post Offices. Demand for NCR’s automated teller machines is also growing, particularly in overseas markets. The stock has stayed in a narrow range since it spun off subsidiary Teradata Corp. in October, 2007. However, it still trades at a reasonable 17.3 times its likely 2008 earnings of $1.56 a share. NCR is a buy.
MICROSOFT CORP. $26 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 9.2 billion; Market cap: $239.2 billion; WSSF Rating: Above average) earned $1.87 a share (total $17.7 billion) in its fiscal year ended June 30, 2008, up 31.7% from $1.42 a share ($14.1 billion) in the prior year. Revenue grew 18.2%, to $60.4 billion from $51.1 billion. Research spending rose to $8.2 billion (13.6% of revenue) from $7.1 billion (13.9% of revenue). Microsoft now holds cash of $23.7 billion ($2.59 a share), and has no debt. The slowing economy could force businesses to spend less on software in fiscal 2009. The company could also have trouble expanding in emerging markets, as illegal copying there continues to hurt sales of new software. However, Microsoft will keep profiting from strong consumer demand for new computers. A possible takeover or alliance with Yahoo! Inc. would also improve the long-term prospects of its Internet search operations. Microsoft is a buy.
Technology stocks are always risky, and the computer chip business is highly volatile. We feel the best way to cut the risk in computer chip investing is to focus on industry leaders that can afford to invest large amounts of money in the development of new products — like these four technology stocks. As well, all four technology stocks are attractive in relation to their earnings and sales. INTEL CORP. $22 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.7 billion; Market cap: $125.4 billion; WSSF Rating: Above average) is a leader among technology stocks. Intel is the world’s largest maker of computer chips, and controls roughly 80% of the global market. Intel currently spends about 16% of its revenue of $6.75 a share on research. This spending has led to several highly profitable products in the past few years. A good example is its multi-core processor chips, which let computers perform several tasks simultaneously....
Many investors limit their holdings in the Finance sector to well-established banks. However, much of the world still operates on a cash basis. As well, the increasing migration of workers to faster-growing economies has spurred strong demand for reliable money-transfer services. Western Union is the world’s largest provider of cash transfers. Its strong reputation and large international network should continue to give it a competitive advantage in a growing market. THE WESTERN UNION CO. $28 (New York symbol WU; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 740.0 million; Market cap: $20.7 billion; WSSF Rating: Above average) provides money transfer and foreign exchange services. It operates in more than 200 countries through a network of 335,000 agents, such as post offices, banks and retailers. Over 80% of Western Union’s agents are located outside of the United States....
There are some signs emerging that suggest the worst of the credit crisis may be over and bank stocks could be looking up. The likely passage of a new housing bill will help ease concerns over the possible bankruptcy of government-sponsored mortgage lenders Fannie Mae and Freddie Mac. The bill will also help troubled homeowners refinance at fixed rates in order to avoid foreclosure. The bill could cost the government $25 billion, but the improving situation in Iraq should help free up funds. As well, oil has moved down from its recent peak of over $147 barrel, partly due to the prospect of more drilling within the United States. Lower fuel costs will give homeowners more cash for mortgage payments and improve overall consumer confidence....
The market has further gains ahead in our view, but risk is higher than a few years ago. That’s why we are culling our list, especially in aggressive stocks. We see these four as sells: BARNES & NOBLE INC. $36 (New York symbol BKS) and BORDERS GROUP INC. $17 (New York symbol BGP) both face increasingly strong price competition from Internet booksellers. Store renovation costs and new customer loyalty programs will also hurt their profit growth. Sell. CHIPOTLE MEXICAN GRILL INC. $73 (New York symbol CMG.B) faces rising costs for beef, chicken, cheese and avocados. At over 42 times its current earnings forecast, the stock is particularly vulnerable to a sharp drop if profits fail to match expectations. Sell....
HECLA MINING COMPANY $8.71 (New York symbol HL; SI Rating: Extra risk) (208-769-4100; www.hecla-mining.com; Shares outstanding: 127.4 million; Market cap: $1.1 billion) explores for, mines and processes silver and gold in the U.S. and Mexico. The Idaho-based company has been in business for 117 years. Hecla produced 5.6 million ounces of silver in 2007, mostly from its 29.7%-owned Greens Creek mine in Alaska (2.6 million ounces) and its 100%- owned Lucky Friday mine in Idaho (3 million ounces). The company recently paid Rio Tinto plc $750 million for the 70.3% interest in the Greens Creek Mine that it didn’t already own. Greens Creek is the fifth-largest silver mine in the world. Hecla now expects its silver output to rise to 11 million ounces per year by 2009....
NEW GOLD $7.95 (Toronto symbol NGD; SI Rating: Speculative) (888-315-9715; www.newgold.com; Shares outstanding: 211.9 million; Market cap: $1.7 billion) is the new name for Peak Gold, formerly symbol PIK on Toronto. New Gold is the result of the merger of three companies: Peak Gold, Metallica Resources, symbol MR on Toronto, and New Gold, symbol NGD on Toronto. Under the terms of the merger, Peak Gold shareholders received 0.1 of a New Gold share and $0.0001 in cash for each Peak share held. New Gold expects to produce 297,000 ounces of gold in 2008 and 350,000 ounces in 2009. The company also has $500 million in cash to expand production at Peak’s Amapari mine in Brazil, to develop Metallica’s El Moro mine in Chile and to develop New Gold’s Afton mine in British Columbia....
SUNOPTA INC. $5.36 (Toronto symbol SOY; SI Rating: Speculative) (905-455-2528; www.sunopta.com; Shares outstanding: 63.9 million; Market cap: $342.5 million) fell recently after the company said it is replacing its chief executive officer and chief financial officer following an ongoing audit investigation into a large writedown in its berry business. SunOpta gets the bulk of its revenues from its Foods division, which specializes in the sourcing, processing and distribution of organic, kosher and specialty food products. The company’s BioProcess division engineers and sells proprietary steam explosion technology systems that aim to use high heat and pressure to convert biomass such as sugar cane pulp, wood chips and straw into useful components such as ethanol. These waste products are much cheaper and more plentiful than the corn or fresh sugar cane typically used to produce ethanol. However, development of this process has not worked as well as we expected....
DOREL INDUSTRIES $29.04 (Toronto symbol DII.B; SI Rating: Extra Risk) (514-731- 0000; www.dorel.com;Shares outstanding: 33.4 million; Market cap: $969.9 million) has acquired U.S. bicycle accessories maker PTI Sports for $28.1 million U.S. PTI is the second-largest North American maker of bicycle helmets. The purchase is part of Dorel’s strategy to grow its bicycle and juvenile products businesses. The PTI Sports purchase lets Dorel offer both bicycles and bicycle accessories. PTI also provides widespread North American distribution at mass-market retailers and sporting goods stores. As well, Dorel anticipates significant cost savings as it integrates PTI into its Pacific Cycle division. Pacific Cycle is a designer and supplier of bicycles including the Schwinn, Sting-Ray, Mongoose and GT brands....