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.
Read More
Close
Growth Stocks Library Archives
HEWLETT-PACKARD CO. $47.29, New York symbol HPQ, fell 10% this week after it agreed to buy Electronic Data Systems Corp. (New York symbol EDS), a provider of computer services to large government agencies and corporations. Major clients include the U.S. Navy and General Motors. Hewlett will pay $13.9 billion in cash for EDS. The company held cash of roughly $10 billion or $4.04 a share in cash at January 31, 2008, so it will have to borrow the money it needs to complete the takeover. However, long-term debt of $5.1 billion is just 5% of Hewlett’s market cap, so it can comfortably afford to take on more debt. The price is also less than half of Hewlett’s revenue of $28.3 billion in its second fiscal quarter ended April 30, 2008. That’s up 11.0% from $25.5 billion in the year-earlier quarter. Earnings per share before unusual items rose 24.3%, to $0.87 from $0.70....
SYMANTEC, $19.99, symbol SYMC on Nasdaq, rose this week after it reported that earnings excluding one-time items rose 36.4% in the three months ended March 28, 2008, to $309.4 million from $226.8 million a year earlier. Earnings per share rose 50%, to $0.36 from $0.24, on 8.2% fewer shares outstanding. Excluding the impact of acquisitions, revenues rose 14.0% to $1.55 billion from $1.36 billion. In the latest quarter, earnings gained from strong sales in Europe (up 17.3%) and Asia (up 18.7%). International sales (52.5% of revenues) rose 15.2%. U.S. sales (47.5% of revenues) rose 11.5%, despite difficult economic conditions. Symantec’s consumer business, which represents 29% of the company’s total revenues, grew 9.9%. Revenues from Symantec’s services business (6.2% of revenues) grew 11.8%. Security and data management sales (28.4% of revenues) grew 21.5%, and storage and server management sales (36.4% of revenues) rose 10.6%....
MICROSOFT CORP. $29.39, Nasdaq symbol MSFT, has dropped its hostile takeover bid for Internet search firm Yahoo! Inc. (Nasdaq symbol YHOO). Microsoft raised its cash-and-stock offer, from $31 a share to $33, but Yahoo demanded at least $37. Microsoft had earlier threatened to present its offer directly to Yahoo’s stockholders. However, a long proxy fight would make it harder for Microsoft to retain Yahoo programmers and other key employees. As well, Yahoo would probably take steps to make itself less desirable to Microsoft. This might include outsourcing some of its Internet search business to rival Google Inc. Microsoft will continue to expand its online businesses through internal growth and smaller acquisitions. That could include increasing its 1.6% stake in privately held Facebook, a social networking Internet site with over 69 million users worldwide. Microsoft could expand its online revenues by integrating its Live search engine and Outlook email program with Facebook. It’s also possible that this week’s drop in Yahoo’s share price to around $26 will prompt Yahoo to negotiate a new deal with Microsoft....
CHIPOTLE MEXICAN GRILL $85.65 (New York symbol CMG.B; SI Rating: Speculative) (303-595-4000; www.chipotle.com; Shares outstanding: 32.9 million; Market cap: $3.1 billion) is a Denver-based chain of Mexican restaurants. Founded in 1993, Chipotle (pronounced chi- POAT-lay) operates in the fast/casual dining segment, offering higher quality food and better decor and service than fast food chains, at slightly higher prices. In the three months ended December 31, 2007, Chipotle’s revenues rose 31.5%, to $288.9 million from $219.7 million a year earlier. Most of the revenue growth came from new restaurant openings, although comparable same store revenues were up 10.6% as well. Same-store growth resulted from an increase in customer visits. The company opened 37 restaurants in the latest quarter. It currently has over 700 restaurants....
SYMANTEC CORP. $17 (New York symbol SYMC) has acquired privately held AppStream for an undisclosed sum. The two companies have been business partners since 2006. AppStream develops technology that makes it easier to distribute computer programs across large networks. Demand for software like this is growing strongly. Buy. J.C. PENNEY CO. $41 plans to scale back its expansion plans for 2008 due to slowing consumer spending. It will now open 36 new stores instead of 50, and renovate 20 stores instead of 65. It will invest some of the savings in other growth opportunities, such as its new “American Living” line of clothing and home furnishings. Buy. CINTAS CORP. $29 earned $0.53 a share in its third fiscal quarter ended February 29, 2008, up 10.4% from $0.48 a year earlier. Revenue grew 7.8%, to $976.0 million from $905.4 million. The recent economic slowdown has hurt demand for Cintas’s uniform rentals and other business services. However, cost controls should help it stay profitable. Buy.
THE PROCTER & GAMBLE CO. $67 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 3.1 billion; Market cap: $207.7 billion; WSSF Rating: Above average) is one of the world’s largest makers of household and personal care products. Over 20 of its 300 brands each generate annual sales of over $1 billion, including Crest (toothpaste), Tide (detergent), Head & Shoulders (shampoo) and Pampers (diapers). Wal-Mart accounts for 15% of Procter’s sales.
Shifting away from food products
The company now aims to sell some of its slowergrowing brands, and focus on its more promising health and beauty operations. For example, Procter will set up its coffee business as a separate company called The Folgers Coffee Company. This division supplies 2% of Procter’s sales. Procter will probably opt for a split-off transaction, which gives stockholders the option of exchanging their Procter shares for Folgers shares. Unlike a typical spin-off, only those Procter stockholders who wish to participate will receive Folgers shares. A split-off will also let investors defer capital gains taxes....
TOYOTA MOTOR CORP. ADRs $100 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.8 billion; Market cap: $180.0 billion; WSSF Rating: Above average) has expanded its ownership of Fuji Heavy Industries Ltd., from 8.7% to 16.5%. Fuji makes cars and trucks under the Subaru brand. Toyota paid $305.7 million, which is just 7% of the $4.1 billion or $2.59 per ADR it earned in the three months ended December 31, 2007 (each American Depository Receipt represents two Toyota common shares). The two companies will also jointly develop new cars. That will help Toyota reach its goal of expanding sales by 11% in the current fiscal year. The alliance will also give Toyota greater access to Fuji’s automotive engineers and other skilled workers, and improves efficiency in the face of rising prices for raw materials. Toyota is a buy.
INTERNATIONAL BUSINESS MACHINES INC. $124 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.4 billion; Market cap: $173.6 billion; WSSF Rating: Above average) earned $1.65 a share in the three months ended March 31, 2008, up 36.4% from $1.21 a year earlier. Revenue rose 11.4%, to $24.5 billion from $22.0 billion. IBM continues to gain from its strategy of expanding its software operations, which generate higher profit margins than hardware sales. Software revenue grew 14% in the latest quarter. IBM also gets over 60% of its revenue from its international operations, which limits its exposure to a slowing economy in the United States. IBM is a buy....
AT&T and Verizon are investing huge sums in wireless frequencies (called ‘spectrum’ in the industry) and high-speed Internet networks. These outlays will help them compete in leading-edge technologies, and offset shrinking revenue from traditional telephone services. AT&T INC. $39 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 6.0 billion; Market cap: $234.0 billion; WSSF Rating: Average) provides traditional local and long-distance services to over 61 million customers in 22 states. It also has 70 million wireless subscribers nationwide, and 14.2 million high-speed Internet customers. AT&T recently paid $6.6 billion for 700-MHz wireless spectrum licenses in a government auction. That’s equal to 39% of the $17.0 billion or $2.76 a share it earned in 2007. These airwaves can travel longer distances and penetrate thicker walls than regular 1,900-MHz cellular frequencies. That means AT&T needs fewer towers to cover the same area....
ARKANSAS BEST CORP. $37 (Nasdaq symbol ABFS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 25.2 million; Market cap: $932.4 million; WSSF Rating: Average) specializes in less-than-truckload (LTL) shipping, which combines freight from multiple customers into a single vehicle. LTL services supply 95% of Arkansas Best’s revenue. The remaining 5% comes from logistics and vehicle maintenance services. The company is expanding its same-day and overnight delivery services. Demand for regional shipping is growing faster than Arkansas Best’s traditional long-haul services, as many of its customers aim to carry less inventory as the economy slows. Short-haul now accounts for one-third of the company’s shipping revenues. Arkansas Best recently secured a new five-year contract with the Teamsters union, which represents 75% of its workers. Besides labor peace, the new deal gives the company more control over its costs than regular truckload carriers. This flexibility will make it easier for Arkansas Best to meet the needs of its time-sensitive regional customers....