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
MTS SYSTEMS CORP. $42 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 17.7 million; Market cap: $743.4 million; WSSF Rating: Average) has expanded its facilities in China. This will help MTS sell more custom-built testing and diagnostic systems to Chinese automotive, aircraft and industrial manufacturers. MTS’s expertise will help these Chinese customers improve efficiency, and speed up the development of new products. In the fiscal year ended September 30, 2007, MTS’s earnings rose 8.0% to $42.0 million from $38.9 million in the prior year. Per-share earnings grew 13.4%, to $2.29 from $2.02, on fewer shares outstanding. Revenue rose 6.0%, to $420.5 million from $396.8 million. MTS spent 4.7% of its revenue on research in fiscal 2007. The company has increased its quarterly dividend 36.4%, from $0.11 a share to $0.15. It now yields 1.4%. MTS Systems is a buy.
Sales of computer software could weaken over the next year, if a slowing economy prompts computer users to delay upgrades or new purchases. That’s why we feel investors should stick with leading software makers like these five, whose size and customer base will help them stay profitable and generate cash flow for new product development. However, we see only three as buys right now. MICROSOFT CORP. $34 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 9.4 billion; Market cap: $319.6 billion; WSSF Rating: Above average) is the world’s largest maker of computer software. Its flagship products, the Windows operating system and the Office suite of business programs, dominate their markets....
We first recommended Stanley Works at $30 in our August, 2003 issue. We liked the strong earnings potential of its brands, and its expansion into less cyclical industries like building security services. The company also has a long history of rising dividends. Stanley reached a high of $64.25 in July this year, but has since moved down with slowing housing and renovation markets. However, it’s diversifying its product lines and expanding overseas. The stock is also cheap in relation to earnings, cash flow and sales. THE STANLEY WORKS $51 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 82.2 million; Market cap: $4.2 billion; WSSF Rating: Average) makes a wide variety of hand and power tools for consumers and industrial users....
China holds $1.4 trillion in U.S. dollars, and has talked of selling some of them. This brings to mind the proverbial boy-who-held-the-tiger-by-the-tail. It took China decades to build this hoard. Dumping part of it would undermine the value of the remainder. Moreover, China needs U.S. goodwill. It needs buying by U.S. consumers far more than they need cheap manufactured goods. The Chinese demonstrate this need in subtle ways. For instance, after poisoned Chinese pet food ingredients killed some North American dogs and cats, China quickly executed the former head of the Chinese FDA, who was on trial for taking bribes. Chinese villages are full of restless young men who know about modern life from community TV and the Internet, and want their share. Many are already frustrated by a shortage of marriageable women. This grows out of China’s one-child-per-family policy, which led many families to hold out for a son and abort girl babies. Failing to keep the boys employed could spark a new Chinese revolution....
BAYOU BEND PETROLEUM $0.58 (Toronto symbol BBP; SI Rating: Speculative) (416-364-8820; www.bayoubendpetroleum.com; Shares outstanding: 308.3 million; Market cap: $178.8 million) plunged 40% in one day recently after it drilled a dry hole in the Gulf of Mexico. However, we think investors overreacted to the results in this one exploration well. Bayou Bend explores for and produces natural gas in the shallow water shelf area of the Gulf of Mexico. Bayou Bend is part of the Lundin Group, which includes major global mining concern Lundin Mining. The company holds lease interests in 108,664 acres offshore Louisiana and Texas in the Gulf of Mexico. It believes its exploration properties have the potential to hold over a trillion cubic feet of natural gas....
RESTORATION HARDWARE INC. $7.15 (Nasdaq symbol RSTO; SI Rating: Extra risk) (415-924-1005; www.restorationhardware.com; Shares outstanding: 38.8 million; Market cap: $277.6 million) jumped for a second time recently after Sears Holdings, symbol SHLD on Nasdaq, reported that it had acquired a 13.7% stake in Restoration Hardware. Sears paid $30.2 million to buy 5.3 million Restoration shares. Just a couple of weeks earlier, Restoration agreed to a $267 million, $6.70 a share, buyout offer from Catterton Partners, a leading U.S. private equity firm. Sears is now seeking access to certain non-public information about Restoration to determine if it wants to make a higher bid for the company....
TUCOWS INC. $0.70 (Toronto symbol TC; SI Rating: Speculative) (1-800-371-6992; www.tucowsinc.com; Shares outstanding: 73.8 million; Market cap: $51.6 million) provides domain name registrations and other services to over 9,000 Web-hosting companies and Internet service providers. It provides registration for such top domains as .com, .net, and .org, as well as 17 countrycode domains, including .ca, .us and .uk. It manages over 8 million domain registrations. In the three months ended September 30, 2007, Tucows’ revenues rose 5.6%, to $17.8 million from $16.9 million a year earlier. (All figures except share price in U.S. dollars.) However, the company reported a loss of $310,592 or nil per share compared to a profit of $1.9 million or $.03 a share. Cash flow per share fell 50%, to $0.02 from $0.04. Tucows holds $5.9 million or $0.08 a share in cash. Tucows’ August, 2007 price reductions for domain registrations hurt earnings and cash flow. However, the new pricing structure should improve its long-term growth prospects....
NORTHGATE MINERALS CORP. $3.00 (Toronto symbol NGX; SI Rating: Speculative) (604-681-4004; www.northgateexploration.ca; Shares outstanding: 254.2 million; Market cap: $762.7 million) has made a friendly $257 million U.S. takeover offer for Australian gold miner Perseverance Corp. Northgate will pay $160 million in cash and assume $97 million of Perseverance’s debt and gold hedge liabilities. Perseverance produces 200,000 of gold annually from two mines. Northgate aims to expand output and cut costs at the mines. In September 2007, an environmental review panel rejected Northgate’s proposed Kemess North copper-gold mine in B.C. So Northgate will now use Perserverance’s mines to provide future growth....
KINGSWAY FINANCIAL SERVICES $15.83 (Toronto symbol KFS; SI Rating: Speculative) (905- 629-7888; www.kingsway-financial.com; Shares outstanding: 55.9 million; Market cap: $880.6 million) offers automobile insurance for drivers that standard auto insurers have rejected. This could be because of their poor driving record, vehicle type, place of residence, age or credit rating. The company serves other niche markets including long-haul trucking, taxi, rental car and motorcycle insurance. Kingsway does three-quarters of its business in the U.S. Kingsway reported 36.9% lower earnings in the three months ended September 30, 2007, to $23.6 million, or $0.43 a share, from $37.4 million or $0.67. (All figures except share price in U.S. dollars.) The decline came as stronger operating results in Canada were offset by weakness in the United States....
WYNDHAM WORLDWIDE $27.93 (New York symbol WYN; SI Rating: Extra risk) (973-753-6000; www.wyndhamworldwide.com; Shares outstanding: 177.9 million; Market cap: $5.0 billion) is one of the world’s largest hospitality companies. Wyndham Hotel Group has almost 6,500 franchised hotels and almost 541,000 hotel rooms worldwide. Wyndham’s RCI Global Vacation Network has more than 3.4 million members who have exchange access to over 60,000 vacation properties located in approximately 100 countries. Wyndham Vacation Ownership develops, markets and sells vacation ownership interests and provides consumer financing to owners through its network of approximately 140 vacation ownership resorts serving over 800,000 owners throughout North America, the Caribbean and the South Pacific. In the three months ended September 30, 2007, revenues rose 16.1%, to $1.22 billion from $1.05 billion a year earlier. Earnings excluding one-time items rose 16.5%, to $134 million from $115 million. Earnings per share rose 33.9%, to $0.75 from $0.56, on 11.3% fewer shares outstanding due to share buybacks....