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
ZARGON ENERGY TRUST $22.29 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264- 9992; www.zargon.ca; Shares outstanding: 17.7 million; Market cap: $394.5 million) has oil and gas production assets in Alberta, Manitoba, Saskatchewan and North Dakota. Output is weighted 42% toward gas and 58% to oil. In the three months ended December 31, 2007, Zargon’s cash flow per unit rose 5.2%, to $1.02 from $0.97 a year earlier. Production also rose 5.1%, to 8,790 barrels of oil equivalent per day, from 8,366 barrels. Zargon’s monthly distribution of $0.18 gives the units a yield of 9.7%. The trust flows just 61% of its cash flow through to its shareholders. The units now trade at around 5.2 times this year’s forecast cash flow. The company’s debt of $44.1 million is equal to just over two quarters’ cash flow....
Royal trusts with natural gas exposure are up lately, as cold weather in North America has prompted natural gas prices to jump 30% so far this year, to $9.75 U.S. per million British thermal units. No one can consistently predict natural gas prices. Prices are too dependent on the weather and other volatile, unpredictable factors. However, we think that the longer-term outlook for natural gas prices remains positive. ZARGON ENERGY TRUST $22.29 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264- 9992; www.zargon.ca; Shares outstanding: 17.7 million; Market cap: $394.5 million) has oil and gas production assets in Alberta, Manitoba, Saskatchewan and North Dakota. Output is weighted 42% toward gas and 58% to oil....
Years from now, I suspect we’ll look back on the Bear Stearns collapse as having happened around the end of the 2007-2008 market downturn. That doesn’t mean the market will turn around tomorrow. The bottom could come in a month or two, or prices could fluctuate around the lows for some time. Even if the bulk of the drop in the indexes has already taken place as I suspect, you need to stay alert for areas of high risk. For instance, many recent new issues may perform miserably in the next few years....
CALIAN TECHNOLOGIES $12.00 (Toronto symbol CTY; SI Rating: Speculative) (613-599-8600; www.calian.com; Shares outstanding: 8.3 million; Market cap: $99.6 million) operates in two areas: providing engineering, healthcare and other skilled professional personnel to clients on a contract basis, and producing communications systems. This includes offering a full range of hardware and software systems for testing, operating and managing satellite and other communications systems. In the three months ended December 31, 2007, Calian’s revenues rose 1.8%, to $45.9 million from $45.1 million. Earning per share rose 8.3%, to $0.26 to $0.24. The company continues to benefit from a stronger market for satellite communication systems. It recently won a further contract with leading satellite operator Inmarsat valued at approximately $8 million to develop new ground stations. Inmarsat’s services include voice, data and safety services for most of the world’s airlines and thousands of corporate jets, government VIP aircraft and coastguard and defense agencies....
YAMANA GOLD $15.35, symbol YRI on Toronto, reports that earnings excluding one-time items were $0.06 a share in the three months ended December 31, 2007, compared to nil per share a year earlier. (All figures except share price in U.S. dollars.) Cash flow per share rose to $0.07 from $0.01. Revenues more than tripled to $218.6 million from $60 million. Earnings rose even though operating costs were higher and the Brazilian real rose 20% against the U.S. dollar. Most of Yamana’s costs are in Brazil, while the metal it sells is priced in U.S. dollars. Lower copper prices also hurt profits. Despite the higher profits, the stock fell because its earnings failed to meet consensus expectations. However, Yamana’s recent acquisition of Meridian and Northern Orion, plus earlier acquisitions, will give it an estimated 1.3 million ounces of gold production in 2008, and up to 2.2 million ounces by 2012. The company could generate more than $2 billion in cash flow annually by 2010....
IDEARC INC. $3.86, New York symbol IAR, fell 15% on Friday after the company said it will stop paying its $0.3425 a share quarterly dividend. Idearc does not expect any near-term liquidity problems. However, it wishes to conserve cash as the slowing economy has hurt demand for advertising at its Yellow Pages phone directories, which supplies 90% of its revenue. Idearc is now a hold. J.C. PENNEY CO. INC. $37.48, New York symbol JCP, fell 7% on Friday after it said it would earn about $0.50 a share in its first fiscal quarter ending April 30, 2008. That’s about a third less than its previous estimate of up to $0.80 a share. Higher gasoline, food and other costs have hurt customer traffic and sales....
ADOBE SYSTEMS $34.45, symbol ADBE on Nasdaq, rose over 8% this week after it reported earnings that exceeded consensus expectations. In the three months ended February 29, 2008, earnings per share excluding one-time items jumped 60%, to $0.48 from $0.30 a year earlier. Revenues rose 37.1%, to $890.4 million from $649.4 million. The increase came from strong sales of its Creative Suite 3 products and Acrobat software. Adobe holds cash of $1.7 billion or $3.06 a share, and has little long-term debt. The company has plenty of financing for new product development. Adobe spends a high 18.9% of sales on research and development. Adobe now trades at 21.0 times this year’s forecast earnings of $1.64 a share. That’s reasonable in light of its growth prospects....
JP MORGAN CHASE & CO. $45.97, New York symbol JPM, got a great bargain in its agreed-upon takeover of troubled brokerage firm Bear Stearns (New York symbol BSC), assuming the deal goes through. Morgan is only paying $236 million for the company. That’s entirely in stock, and it’s less than 2% of Morgan’s 2007 earnings of $15.4 billion or $4.38 a share. Morgan will have to spend $6 billion or so to integrate Bear Stearns and deal with the inevitable class-action lawsuits from Bear Stearns stockholders. But it thinks the purchase will eventually add $1 billion to its annual earnings. To counteract Bear Stearns’ severe liquidity problems, the Federal Reserve will finance the purchase of up to $30 billion of Bear Stearns’ less liquid assets, backed solely by those assets. That greatly cuts Morgan’s risk. In light of Bear Stearns’ dire situation and the Fed’s support, anti-trust regulators will probably give the deal quick approval. The takeover also needs the approval of Bear Stearns’ stockholders. Bear Stearns is trading for more than twice the offer’s current value, which means investors expect a higher bid. However, the Federal Reserve is unlikely to offer the $30 billion financing guarantee to other potential buyers....
20-20 TECHNOLOGIES, $6.75, symbol TWT on Toronto, is a leading maker of computer-aided design, sales, engineering and manufacturing software for the interior design and furniture industries. The Montreal-based company serves clients in 100 countries and markets software in 23 languages. In the three months ended January 31, 2008, 20-20 Technologies’ revenues rose 7.7%, to $16.8 million from $15.6 million a year earlier. (All figures except share price in U.S. dollars.) However, earnings per share fell 25%, to $0.03 from $0.04. The fall in the U.S. dollar hurt 20-20’s earnings. The slowdown in U.S. new home construction has also slowed 20-20’s growth in that segment. However, it also makes a lot of its sales to dealers selling to individual customers undertaking bath, kitchen and other home renovation projects. These are less dependent on new housing starts....
J.P. MORGAN CHASE CO. $36.54, New York symbol JPM, fell 4% on Friday after it agreed to participate in an emergency loan package for troubled investment broker Bear Stearns Cos. Inc. (New York symbol BSC). J.P. Morgan will borrow funds from the Federal Reserve, and loan the money to Bear Stearns for 28 days. The Federal Reserve will guarantee the loan, so the risk to J.P. Morgan is minimal. Meanwhile, J.P. Morgan will help Bear Stearns find permanent financing. It’s possible J.P. Morgan may try to buy Bear Stearns. However, anti-trust regulators would probably block a merger. J.P. Morgan is still a buy....