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
APPLE INC. $184.70, Nasdaq symbol AAPL, earned $3.93 a share in its fiscal year ended September 29, 2007, up 73.1% from $2.27 in the prior year. The gains came from strong demand for Apple’s new iPod music players, iPhone and Mac computers. Revenue rose 24.4%, to $24.0 billion from $19.3 billion. Apple is debt free, and has $15.4 billion ($17.64 a share) in cash. It spends roughly 12% of its revenue of $27 a share on research. Apple’s strong reputation for design and convenience, as well as its loyal customer base, should continue to spur growth. However, at 40.7 times its fiscal 2008 profit forecast of $4.54 a share, the stock is vulnerable to a big drop if the company fails to meet its revenue and earnings targets. Apple is still a hold for aggressive investors....
WASHINGTON MUTUAL INC. $29.09, New York symbol WM, earned $0.23 a share in the third quarter of 2007, down 70.1% from $0.77 a year earlier. The drop came from a nearly 500% increase in loan loss provisions, mainly due to weakness in the housing market. Writedowns of asset-backed securities also hurt earnings. Revenue fell 2.9%, to $3.4 billion from $3.5 billion. Washington Mutual hoped that recent moves to cut its exposure to subprime mortgages would make its mortgage operation profitable by the end of 2007. However, losses at this division will likely continue into 2008. The stock fell over 10% on the news. But the company’s other main businesses, retail banking and credit cards, continue to attract new customers and expand revenues. That should help Washington Mutual maintain its $2.24 dividend, which yields 7.7%....
MOLSON COORS BREWING CO. $55.05, New York symbol TAP, has agreed to merge its operations in the United States and Puerto Rico with those of rival brewer SAB Miller PLC. Each will have 50% voting interest in this new venture, called MillerCoors, but Miller will have a 58% economic interest while Molson Coors will have 42%. This new joint venture will account for about 27% of the beer market in the United States. That should help it compete with Anheuser-Busch (see below), which accounts for about half of U.S. beer sales. Assuming regulators approve, the new company should begin operations in 2008. Like the earlier merger of Molson and Coors, the main attraction of this plan is cost savings. Molson Coors expects to save $500 million a year by sharing its distribution networks and other assets with Miller. To put that in context, Molson Coors earned $184.3 million or $1.02 a share in the second quarter of 2007....
HARTE-HANKS INC. $19.47, New York symbol HHS, has moved down in the past month, partly due to the cancellation of a takeover of a competitor by a private equity fund. Investors saw this as a sign of problems in the consumer data collection industry, in addition to the growing unwillingness of lenders to finance takeovers. Harte-Hanks’ earnings have also suffered recently. Slumping housing markets in California and Florida have hurt demand for real estate advertising at its shoppers newspaper business. Fears that the housing downturn will cut consumer spending have also hurt demand for its direct marketing services. But the company’s strong position in these niche markets, as well as its sound balance sheet, should help it rebound quickly. Harte-Hanks is still a buy for long-term gains....
XEROX CORP. $17 (New York symbol XRX) has agreed to acquire Advectis Inc. for $32 million. Advectis makes software that helps mortgage lenders electronically store and share documents. The price is just 12% of the $266 million or $0.28 a share that Xerox earned in the second quarter of 2007. But the deal gives Xerox an opportunity to market its printers and copiers to Advectis’s growing client base. Buy. GANNETT CO. INC. $45 (New York symbol GCI) has completed a two-year plan to shrink the width of its 85 daily newspapers to cut paper costs. Further size reductions are possible, but the costs to redesign layouts could outweigh any extra savings. Meanwhile, Gannett has increased its dividend 29% to $1.60 a share (3.6% yield). Best Buy. INTEL CORP. $26 (NASDAQ symbol INTC) plans to launch its new chips for corporate server networks in November. These chips are 60% smaller than current chips, but 20% more powerful. The new chips should help Intel recapture some of the market share it lost to rival Advanced Micro Devices over the past few years. Buy.
PETSMART INC. $32 (Nasdaq symbol PETM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 134.6 million; Market cap: $4.3 billion; WSSF Rating: Above average) is North America’s largest supplier of pet foods, supplies and services. The company operates 966 retail stores in the United States and Canada. PetSmart emphasizes premium pet foods, many of which are not available in supermarkets, warehouse clubs or other mass and retail merchandisers. It also offers national brands typically found in supermarkets and pet stores, as well as its own private brands. Pet products account for 91% of the company’s total sales. These include pet food, treats and litter (40% of total sales), pet supplies and other non-pet goods (48%) and pets (3%)....
MICROSOFT CORP. $30 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 9.4 billion; Market cap: $282.0 billion; WSSF Rating: Above average) has failed in its initial attempt to have the International Organization for Standardization (ISO) declare its Office software a global standard. A positive ruling would encourage governments and other large organizations to store electronic documents using the Office format. It would also help Microsoft compete with free versions of its software. The company hopes modifications to the format will help it win ISO approval early next year. Meanwhile, sales of Microsoft’s new Windows Vista operating system continue to grow steadily. Vista is now pre-installed in most new computers. But upgrades from older versions of Windows have been slow, particularly to businesses. They are likely waiting for Vista’s first major update, due later this year, to avoid potential conversion problems. Microsoft also raised its dividend 10%. The new annual rate of $0.44 yields 1.5%. Microsoft is a buy.
ALCOA INC. $38 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 884.0 million; Market cap: $33.6 billion; WSSF Rating: Above average) aims to complete construction of its new aluminum smelter in Iceland by the end of 2007. Traditional hydroelectric projects will power the new plant. But Alcoa is studying ways of tapping into Iceland’s abundant geothermal energy to heat water and power turbines. The company hopes to develop a new type of geothermal well that can produce 10 times the power of current wells. That would cut the new plant’s operating costs, and perhaps make it easier for Alcoa to build more plants in Iceland. Alcoa is a buy....
UNITED TECHNOLOGIES CORP. $80 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 991.8 million; Market cap: $79.3 billion; WSSF Rating: Above average) is a leading maker of commercial heating, ventilation and air conditioning equipment, as well as elevator systems. Demand in China for Otis elevators and Chubb building security services is growing strongly. China is also one of the world’s largest markets for heating and air conditioning equipment. Recent investments in China by United Technologies’ Carrier division should help it capture more of this expanding market. United Technologies predicts it will earn between $4.15 a share to $4.25 a share in 2007; the stock trades at 19.0 times the midpoint of that range....
Rising prices for plastic and other raw materials costs are a threat to profit growth at Tupperware and Newell Rubbermaid. But both are doing a good job controlling costs, and expanding sales at home and overseas. That will let them keep reporting higher profits and keep paying above-average dividends. TUPPERWARE BRANDS CORP. $32 (New York symbol TUP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 61.8 million; Market cap: $2.0 billion; WSSF Rating: Above average) makes plastic containers for food and other items. It also makes beauty and personal care products. The company sells its products through independent dealers instead of traditional stores. In the second quarter of 2007, Tupperware’s earnings grew 36.6%, to $0.56 a share from $0.41 a year earlier. Sales grew 12.4%, to $492.9 million from $438.6 million, mainly due to strong growth in North America and Asia. If you exclude the positive impact of foreign exchange rates, per-share earnings rose 18.4%, and sales grew 8%....