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
BANK OF AMERICA CORP. $38.50, New York symbol BAC, has agreed to buy troubled mortgage lender Countrywide Financial Corp. (New York symbol CFC) for $4 billion in stock. In August 2007, Bank of America bought $2 billion of convertible preferred shares from Countrywide. The preferred shares are convertible under certain circumstances into Countrywide common shares at $18 a share, or about 14% below Countrywide’s then market price of $21.00. These preferred shares have since lost approximately 65% of their value. The merger will make Bank of America the largest mortgage lender in the United States, with 25% of mortgage originations and 17% of the mortgage servicing market. Bank of America can also market other services such as deposit accounts and credit cards to Countrywide’s large client base....
CHESAPEAKE ENERGY, $39.32, symbol CHK on New York, has sold some of its natural gas assets in Kentucky and West Virginia to UBS AG and Deutsche Bank’s DB Energy Trading LLC unit for $1.1 billion. The sale entitles UBS and Deutsche Bank to receive scheduled quantities of natural gas from Chesapeake’s interests in more than 4,000 producing wells over a 15-year period. The transaction includes approximately 2% of the Chesapeake’s current proved reserves and net production. The company will retain rights to drill to deeper depths on existing wells that are part of the sale, and to drill new wells on the properties. The sale lets Chesapeake get cash for assets with limited potential, and then use the funds for other projects with much higher growth prospects. Chesapeake is the third-largest U.S. domestic natural gas producer after BP and ConocoPhillips....
INTEL CORP. $22.67, Nasdaq symbol INTC, fell 15% this week on fears that rising loan writedowns at major banks would hurt sales of new computers. Banks are large buyers of computer technology. A slowing economy could also hurt new computer demand at other big corporations. However, Intel’s recent restructuring will help it stay profitable even if sales weaken. The launch of new, faster chips in the second half of 2008 should also expand its lead over rival chipmaker Advanced Micro Devices, particularly in the corporate server segment. Intel is a buy. NEWMONT MINING CORP. $52.42, New York symbol NEM, gained $4 this week as gold surged to a new record of $869.05 an ounce, surpassing the old peak of $850 reached in 1980....
3M COMPANY $85 (New York symbol MMM) expects its earnings before special items will rise from $4.95 a share to $5.45 a share in 2008, or about 10%. The stock trades at 15.6 times the 2008 estimate. Most of the gain will come from 3M’s international operations, which supply two-thirds of its revenue. The company’s large overseas operations will also help shield it from a slowing economy in the United States, and offset low U.S. dollar. Best Buy. SYSCO CORP. $32 (New York symbol SYY) has increased its quarterly dividend 15.8%, from $0.19 a share to $0.22. The new annual rate of $0.88 yields 2.8%. However, rising food and fuel costs could hurt Sysco’s profit growth. A slowing economy would also cut restaurant visits and sales. Hold. WELLS FARGO & CO. $31 (New York symbol WFC) has moved down from its recent high of $38, mainly due to the problems in mortgage markets. However, Wells Fargo’s conservative lending policies should keep loan losses down. Buy.
FEDEX CORP. $95 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 309.3 million; Market cap: $29.4 billion; WSSF Rating: Average) provides door-to-door delivery of packages and documents in the United States and 220 other countries. It operates a fleet of over 75,000 ground vehicles, and 669 aircraft. The spread of free trade and rising industrialization has spurred strong demand for FedEx’s delivery services in overseas markets. In the past few months, FedEx has spent $700 million on acquisitions in China, India and the UK. International businesses now supply 25% of its revenue.
China offers big potential for FedEx
The company has high hopes for China. It currently serves over 200 Chinese cities, and aims to add 100 more over the next few years. FedEx is now building a new $150 million hub in southern China, which will help it expand throughout Asia....
H.J. HEINZ & CO. $46 (New York symbol HNZ; Income Portfolio, Consumer sector; Shares outstanding: 316.9 million; Market cap: $14.6 billion; WSSF Rating: Above average) earned $227.0 million in its second fiscal quarter ended October 31, 2007, up 15.0% from $197.4 million a year earlier. Per-share earnings rose 20.3%, to $0.71 from $0.59, due to fewer shares outstanding. As part of its new growth plan, Heinz increased marketing spending in the quarter by 23%. That helped sales grow 13.6%, to $2.5 billion from $2.2 billion. If you disregard acquisitions and foreign exchange rates, sales rose 8.1%. The company’s plan to target developing countries like Russia, China and India for new growth is also proving successful. Sales in these countries rose 24% in the latest quarter. Heinz is a buy.
T. ROWE PRICE GROUP INC. $61 (Nasdaq symbol TROW; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 264.1 million; Market cap: $16.1 billion; WSSF Rating: Average) has raised its quarterly dividend 41.2%, from $0.17 a share to $0.24. The new annual rate of $0.96 yields 1.6%. T. Rowe Price has raised its dividend each year since it became a public company in 1986. T. Rowe Price is a buy. SONY CORP. ADRs $54 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $54.0 billion; WSSF Rating: Above average) reports that U.S. sales of its PlayStation 3 video game player rose 300% in November compared to the prior month. Sales and market share should continue to grow as gamemakers release more games for the new console. Stronger sales of its digital cameras and notebook computers should also expand Sony’s earnings....
ARCHER DANIELS MIDLAND CO. $41 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 642.9 million; Market cap: $26.4 billion; WSSF Rating: Above average) has gained nearly 15% in the past month, despite weaker prices for biofuels, including ethanol from corn. That’s because lower prices have slowed or postponed construction of rival ethanol production plants, which should help Archer Daniels maintain its position as the largest ethanol producer in the United States. New laws mandating greater use of ethanol as a gasoline additive should also stabilize ethanol demand and prices. Despite the recent rise, Archer Daniels’ stock still trades at a reasonable 15.3 times the $2.68 a share it will probably earn in its current fiscal year. It’s also attractive at 56% of its sales of $73 a share. The $0.46 dividend yields 1.1%. Archer Daniels Midland is a buy.
The drop in the U.S. dollar hurts Toyota and Honda since earnings in the United States now translate into fewer Japanese yen. However, both are building more of their cars here, which cuts their currency risk. Their strong reputations for quality and fuel efficiency should also let them expand profits despite high gas prices and the slowdown in the housing market. TOYOTA MOTOR CORP. ADRs $106 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADR’s outstanding: 1.6 billion; Market cap: $169.6 billion; WSSF Rating: Above average) reported that its North American sales in the six months ended September 30, 2007 rose 2.3%, due to strong demand for the new Tundra pickup truck and Prius hybrid compact. Sales grew 18% in Japan, and 8% in Europe. Consequently, Toyota’s six-month revenue rose 9.3%, to $101.0 billion from $92.4 billion a year earlier. Earnings improved 18.8%, to $4.86 per ADR from $4.09 per ADR. (Each Toyota American Depository Share represents two of Toyota’s common shares.)...
H&R BLOCK INC. $18 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 325.0 million; Market cap; $5.9 billion; WSSF Rating: Above average) has cancelled its deal to sell its Option One mortgage business, due to increasing default rates in the subprime mortgage market and falling home prices. The company now plans to shut down its mortgage operations and focus on its more profitable businesses — tax preparation, accounting and brokerage services. One-time costs to wind down the mortgage division increased H&R Block’s losses from continuing operations in its second fiscal quarter ended October 31, 2007, to $0.42 a share (total $136.1 million) from $0.38 a share ($121.0 million) a year earlier. The company typically loses money during this quarter, as it earns most of its income during the January to April tax filing season. Revenue from continuing operations rose 9.8%, to $434.8 million from $396.1 million....