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
ANHEUSER-BUSCH COMPANIES INC. $51 (New York symbol BUD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 749.6 million; Market cap: $38.2 billion; WSSF Rating: Above average) is the world’s largest brewer. Major brands include Budweiser, Bud Light, Busch and Michelob. Anheuser-Busch accounts for roughly half of the beer sold in the United States. Beer supplies 85% of the company’s profit. The other 15% come from its nine theme parks and aluminum can recycling operations. Warren Buffett’s Berkshire Hathaway owns roughly 5% of the stock. Overall domestic beer consumption is still growing slowly. However, beer sales to the important 21 to 27 age group are starting to rise....
APPLE INC. $153 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 869.6 million; Market cap: $133.0 billion; WSSF Rating: Average) plans to start selling its new iPhone in the United Kingdom on November 9, at prices similar to the U.S. version. Although the iPhone connects to the Internet at slower speeds than comparable European devices, other features such as its touch-screen interface will likely spur strong demand. The innovative iPhone should also help fuel European interest in Apple’s Mac computers. Apple will probably launch the iPhone in other European countries over the next few months. Apple recently cut the price of the iPhone by a third. That should help Apple expand its share of the highly competitive mobile phone market. Increasing downloads from its iTunes web site should help offset the lower revenue from the price cut. But at over 40 times earnings, Apple is vulnerable to a steep drop if earnings growth slows....
CONAGRA FOODS INC. $25 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 489.8 million; Market cap: $12.2 billion; WSSF Rating: Above average) is phasing out less-profitable food products to focus on those with greater potential, such as foods aimed at health-conscious consumers. In its first fiscal quarter ended August 26, 2007, earnings before unusual items rose 30.8%, to $0.34 a share from $0.26 a year earlier. Sales rose 11.1%, to $3.0 billion from $2.7 billion. An ongoing cost cutting plan continues to help ConAgra cope with higher prices for ingredients and fuel. Profits at its commodity trading division, which accounts for about 10% of total revenue, rose four-fold due to rising fertilizer prices. The company has resumed production of its Peter Pan peanut butter after a recent salmonella outbreak. The problems had little impact on ConAgra’s stock, which now trades at 16.7 times the $1.50 a share it will probably earn in fiscal 2008. The improving earnings should let it raise its $0.72 dividend, which yields 2.9%....
We generally recommend investors avoid pharmaceutical companies, due to the huge costs and risks of developing new drugs. Companies that sell medical devices and replenishable supplies to hospitals, clinics and laboratories offer a much safer way to take advantage of the demographic trend of an aging population. When they sell a piece of equipment, medical device makers typically acquire a long-term customer for supplies and services. That helps them generate steadier revenues for longer periods of time. As well, medical device customers are less likely to switch to cheaper generic brands....
TEXAS INSTRUMENTS INC. $36 (New York symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.4 billion; Market cap: $51.8 billion; WSSF Rating: Average) is the world’s leading maker of chips for cellphones and other portable devices. Texas Instruments continues to aggressively buy back shares. (Buybacks reduce the number of shares outstanding, which raises per-share earnings.) It just increased its current repurchase authorization by $5 billion, to $8.8 billion (17% of its market cap). The company is doing a good job holding down its costs, which is helping it cope with cyclical chip demand. It also recently increased its dividend for the second time in 2007. The new annual rate of $0.40 a share, up 25% from the old rate of $0.32, gives the stock a current yield of 1.1%....
MOTOROLA INC. $19 (New York symbol MOT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.3 billion; Market cap: $43.7 billion; WSSF Rating; Above average) has struggled lately in the face of strong competition in the mobile phone market. Growing sales of low-margin, entry-level phones have also hurt profits at this division, which accounts for 60% of Motorola’s revenue. The company is now focusing on higher-margin multimedia phones that can store and play back music and videos, and receive email. In July, it launched the Razr 2, the successor to its popular Razr phone. So far, the new model is selling well. Motorola may cut the price to spur sales during the busy Christmas shopping season. The company plans to launch several other new models over the next few months. Motorola has also formed alliances with several online music sites. The extra revenue from downloads should stabilize revenues, and help it compete with Apple’s iPhone....
As foreign markets mature along with growing economies and rising consumer and business demand, market leaders in the United States stand to gain from bursts of sales on their top products to new overseas customers. This includes companies such as Anheuser- Busch , plus Tupperware Brands, Newell Rubbermaid and United Technologies. It also includes 3M. Since early last year, 3M’s new CEO has raised its research and development budget to accelerate its growth rate by revitalizing its rich tradition of product innovation. New products will add to sales in both domestic and expanding overseas markets. We now feel 3M is attractively priced in relation to its growth prospects. 3M COMPANY $93 (New York symbol MMM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 715.8 million; Market cap: $66.7 billion; WSSF Rating: Above average) is a diversified manufacturer formerly known as Minnesota Mining & Manufacturing....
DEVON ENERGY CORP. $83.43 (New York symbol DVN; SI Rating: Speculative) (405-235-3611; www.devonenergy.com; Shares outstanding: 445.9 million; Market cap: $37.2 billion) is one of the largest U.S.-based independent oil and gas explorers and producers. Devon’s properties are located mainly in the United States and Canada and, to a lesser degree, various regions outside North America, including Azerbaijan, Brazil, China and Russia. The company is now selling its assets in Egypt and West Africa for an estimated $2 billion. Devon’s midstream operations include pipelines, storage and treatment facilities and gas processing plants. It also markets natural gas and crude oil.
Cash flow keeps growing
In the three months ended June 30, 2007, Devon’s revenues rose 24.6%, to $2.93 billion from $2.35 billion. Cash flow rose 22.1%, to $1.69 billion, or $3.80 a share, from $1.39 billion or $3.15 a share. Devon’s shares trade at 5.5 times cash flow....
NORTHGATE MINERALS CORP. $2.74 (Toronto symbol NGX; SI Rating: Speculative) (604-681-4004; www.northgateexploration.ca; Shares outstanding: 254.2 million; Market cap: $696.5 million) dropped recently after a joint federal-provincial environmental review panel rejected its proposed Kemess North copper-gold open-pit project. In the panel’s view, adverse environmental, social and cultural effects outweighed its potential economic and social benefits. Several aboriginal groups opposed the project. Kemess North is located about six kilometers from Kemess South, Northgate’s mine in north central British Columbia. With about 4.1 million ounces of low-grade gold reserves, Kemess North was slated to replace Kemess South, which will be exhausted by late 2010. Northgate will now focus on its Young- Davidson property in northern Ontario, which has an estimated 2.1 million ounces of gold reserves. Northgate hopes to complete a feasibility study in early 2008, and targets production of 175,000 ounces per year beginning in 2010....
DOMINO’S PIZZA $17.56 (New York symbol DPZ; SI Rating: Average)(734-930-3030; www.dominos.com; Shares outstanding: 62.8 million; Market cap: $1.1 billion) completed its recapitalization plan earlier this year. This included refinancing its existing debt to take advantage of lower interest rates, and taking on $1 billion in new debt to buy back shares and pay a special dividend of $13.50 a share. In the three months ended June 30, 2007, Domino’s revenues rose 3.8%, to $340.3 million from $347.7 million. Excluding one-time recapitalization expenses, earnings per share fell 17.6%, to $0.28 from $0.34. The earnings decline came mostly from higher interest expenses on the additional debt. Domino’s debt now stands at $1.7 billion, up from $740 million a year earlier. Higher labor, energy, transportation costs, as well as increased prices for commodities such as cheese and beef also hurt earnings....