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
WASHINGTON MUTUAL INC. $15.15, New York symbol WM, fell over 10% this week after the company unveiled a major restructuring plan, including shutting down its remaining subprime mortgage operations. The company will continue to offer mortgages to more credit-worthy borrowers through its 2,300 branches and other retail distribution channels. A non-cash writedown will cut Washington Mutual’s fourth quarter earnings by $1.6 billion. It earned $210 million or $0.23 a share in the third quarter of 2007. To conserve cash, the company has cut its quarterly dividend 73.2%, from $0.56 a share to $0.15. The new rate of $0.60 yields 4.0%. The lower dividend should save Washington Mutual $1.2 billion in 2008. Washington Mutual also plans to issue $3.0 billion worth of convertible preferred shares. Stockholders tend to dislike convertibles, since they can increase the number of shares outstanding and cut into future per-share growth. Washington Mutual’s shares would have to rise to $21.25 before the preferred holders would even think about converting. If all preferred holders converted, the number of shares outstanding would rise 16%....
H&R BLOCK INC. $20.02, New York symbol HRB, has canceled a deal to sell its Option One mortgage business due to the problems in the mortgage securities market and slumping home prices. Instead, the company will wind down its mortgage operations. It also plans to sell its mortgage servicing business, which collects loans on behalf of other lenders. These moves will cost H&R Block about $200 million (pre-tax). To put that in context, the company lost $302.6 million or $0.93 a share in the three months ended July 31, 2007, including a $192.8 million loss from Option One. Despite the extra charges, steadily getting out of the mortgage business cuts H&R Block’s long-term risk, and lets its focus on its core tax preparation, accounting and wealth management operations....
QUAKER CHEMICAL CORP. $22 (New York symbol KWR) reported record third-quarter sales of $140.7 million, up 20.9% from $116.4 million a year earlier. A $3.3 million pre-tax charge to settle an environmental lawsuit limited Quaker’s earnings to $3.16 million, up slightly from $3.14 million. Per-share earnings fell to $0.31 from $0.32 on more shares outstanding. Best Buy. CONAGRA INC. $25 (New York symbol CAG) has faced recalls lately of contaminated peanut butter and pot pies. However, these are short-term problems and should have little impact on the company’s long-term profitability. The company has raised its dividend by 5.6%. The new annual rate of $0.76 a share yields 3.0%. Buy. BUCKEYE PARTNERS L.P. $50 (New York symbol BPL) continues to increase its quarterly distributions. The new annual rate of $3.30 yields 6.6%. Buy....
YUM! BRANDS INC. $37 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 508.6 million; Market cap: $18.8 billion; SI Rating: Average) is the largest fast-food operator in the world in terms of number of locations, with 34,500 outlets in more than 100 countries. Its major chains include KFC (fried chicken), Pizza Hut, Taco Bell (Mexican food), Long John Silver’s (seafood) andA&W(root beer and hamburgers). Yum has aggressively expanded in China in the past few years. Its China division (which includes Taiwan and Thailand) operates 2,900 restaurants, mainly KFC and Pizza Hut outlets. This division now accounts for 20% of Yum’s sales, and 25% of its profit. Yum plans to open at least 375 new restaurants each year in China over the next few years....
PETSMART INC. $28 (Nasdaq symbol PETM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 134.6 million; Market cap: $3.8 billion; WSSF Rating: Above average) reported a 6.9% drop in earnings in its third fiscal quarter ended October 28, 2007, to $29.5 million from $31.7 million a year earlier. Earnings per share were unchanged at $0.23 due to fewer shares outstanding. Sales rose 8.7%, to $1.12 billion from $1.03 billion. Same-store sales rose 1.4%. High gas prices and the housing slump could slow PetSmart’s fourth-quarter sales and earnings growth. However, the company’s exclusive brands and wide range of merchandise and services will help it compete with large discount retailers like Wal-Mart and Costco. PetSmart is a buy.
LA-Z-BOY INC. $6.00 (New York symbol LZB; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 51.4 million; Market cap: $308.4 million; WSSF Rating: Average) has struggled lately as the slump in the housing market has cut demand for new furniture. In its second fiscal quarter ended October 27, 2007, the company lost $0.07 a share from continuing operations, due to $0.08 a share in one-time charges. It earned $0.06 a share in the year-earlier quarter. Sales fell 11.9%, to $365.4 million from $414.6 million. Meanwhile, La-Z-Boy is doing a good job controlling its inventory. That puts it in a good position to profit when sales rebound. A cut to the $0.48 dividend, which yields 8.0%, is a possibility. But the stock would still yield 4.0% even after a 50% reduction. La-Z-Boy is a buy for patient investors....
ARKANSAS BEST CORP. $23 (Nasdaq symbol ABFS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 25.2 million; Market cap: $579.6 million; WSSF Rating: Average) has dropped nearly 50% in the past six months, as the slowing economy has cut demand for its trucking services. Higher fuel costs and workers compensation claims have also hurt its earnings growth. However, Arkansas Best is still among the most efficient trucking companies in the United States. The stock now trades at 9.7 times its forecast 2007 earnings of $2.36 a share. Earnings in 2008 should grow to $2.56 a share as it begins to realize the benefits from the expansion of its short-haul operations. The stock trades at just 9.0 times that estimate. The $0.60 dividend yields 2.6%. Arkansas Best is a buy.
Slowing sales of new cars is good news for Genuine Parts and Snap-On. Older cars need more replacement parts and maintenance services. Both companies are also doing a good job controlling costs, which will keep profits growing. GENUINE PARTS CO. $49 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 167.9 million; Market cap: $8.2 billion; WSSF Rating: Average) distributes automotive replacement parts to over 4,800 independent outlets in North America. The company also operates 1,100 stores under the NAPA banner. It also distributes industrial parts, office supplies and electrical equipment. The auto parts business supplies about half of the Genuine Parts’ revenue. However, most of the company’s recent growth has come from its industrial parts division, which accounts for 30% of total sales....
WASHINGTON FEDERAL INC. $23 (Nasdaq symbol WFSL; Aggressive Growth Portfolio, Finance sector; 87.4 million; Market cap: $2.0 billion; WSSF Rating: Average) expects to receive regulatory approval for its $189.8 million cash-and-stock acquisition of Seattlebased First Mutual Bancshares, Inc. by the end of 2007. The price is roughly 20 times First Mutual’s earnings, but should add to Washington Federal’s fiscal 2008 earnings, due to cost savings. Meanwhile, Washington Federal earned $1.54 a share (total $135.0 million) in the fiscal year ended September 30, 2007, down 6.1% from $1.64 a share ($143.1 million) a year earlier. The company’s conservative lending policies have minimized its exposure to the mortgage problems that have slashed earnings at other savings and loan companies. Strong controls over noninterest costs such as employee salaries and building expenses should also help Washington Federal keep paying its $0.84 dividend (3.7% yield)....
FORD MOTOR CO. $7.36 (New York symbol F; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.0 billion; Market cap: $14.7 billion; WSSF Rating: Extra risk) aims to sell its struggling Jaguar and Land Rover luxury brands in the next few months. It has already sold its Aston Martin operations, but plans to hang on to its Volvo division. Ford hopes to improve Volvo’s profitability with a new restructuring plan, including sharing product development and purchasing with Ford’s core operations. Ford’s new contract with its main auto workers union should cut its long-term healthcare costs. The company is also making progress restructuring its North American auto business. In the third quarter of 2007, Ford cut its losses before one-time items to $0.01 a share from $0.45 a year earlier. Revenue rose 10.8%, to $41.1 billion from $37.1 billion, thanks to higher overall prices and stronger demand for more expensive cars. Ford is still a hold.