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.
Read More
Close
Growth Stocks Library Archives
AMERICAN EXPRESS CO. $59.28, New York symbol AXP, has agreed to sell its international banking business for $1.1 billion. That figure includes $212 million that Amex will receive over the next 18 months from the transfer of a related operation. To put these amounts in perspective, Amex earned $1.06 billion or $0.88 a share in the second quarter of 2007. The company will probably invest most of the cash in its core card and travel operations, or buy back shares. American Express is a buy....
TEXAS INSTRUMENTS INC. $34.68, New York symbol TXN, is the world’s largest maker of cellphone chips, and investors use its results to gauge the prospects of the technology industry. The company now predicts it will earn between $0.49 a share and $0.53 a share in the third quarter of 2007. That’s up from an earlier forecast of $0.46 to $0.52. The company also forecast a slight gain in revenues. However, the stock fell $1 due to weak growth in new orders. Customers have been working down excess chip inventories in the past few months, and ordering fewer replacements due to fears of an economic slowdown. But Texas Instruments is doing a good job of holding down its costs, which will help it cope with lower volumes. Texas Instruments is a buy for aggressive investors....
APPLE INC. $131.77, Nasdaq symbol AAPL, aims to solidify its 70% share of the digital music player market with its new line of iPods, including a version that can wirelessly connect to the Internet. A new alliance with the Starbucks coffee chain will also make it easier for iPod users to wirelessly download music from Apple’s iTunes music store. However, the stock fell 10% on news Apple is cutting the price of its iPhone by a third. The company will soothe the feelings of customers who bought an iPhone prior to the price cut by giving them a $100 credit toward future purchases. Investors took the price cut as a sign that iPhone demand is already weakening, just two months after its heavily hyped launch. But Apple may hope to make up the lost revenue in bigger iPhone sales volumes, particularly in the Christmas selling season, and possibly from the benefit of introducing Apple products to a larger segment of the public....
WASHINGTON FEDERAL INC. $27 (NASDAQ symbol WFSL) has agreed to acquire First Mutual Bancshares, Inc. for $189.8 million in cash and stock. The price is a third more than the $143.1 million or $1.64 a share it earned in fiscal 2006. First Mutual is profitable, and will immediately add to Washington Federal’s earnings. The company also raised its quarterly dividend 2.4%. The new annual rate of $0.84 yields 3.1%. Buy. NEWELL RUBBERMAID INC. $26 (New York symbol NWL) continues to make progress with its restructuring plan. In the second quarter of 2007, earnings before one-time costs rose 19.6%, to $0.55 a share from $0.46 a year earlier. The plan will help Newell to keep paying its $0.84 dividend (3.2% yield). Buy. ALLIANT ENERGY CORP. $38 (New York symbol LNT) has sold all of its international operations as part its plan to focus on core utility operations in Iowa, Minnesota and Wisconsin. The company used the cash from these sales to buy back stock. But high coal and oil prices could hinder its profit growth. Hold....
GAMESTOP CORP. $50 (New York symbol GME; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 159.0 million; Market cap: $8.0 billion; WSSF Rating: Extra risk) earned $0.13 a share in its second fiscal quarter ended August 4, 2007, up sharply from $0.02 a year earlier. Sales rose 35.0%, to $1.3 billion from $963.3 million, while same-store sales grew 29.1%. Most of the growth is due to strong sales of new game machines from Sony, Microsoft and Nintendo. Demand for used games is also high, and accounts for half of GameStop’s profit. But at 34.7 times its projected fiscal 2008 earnings of $1.44 a share, the stock is vulnerable to unexpected product shortages or delays in the release of new games. GameStop is a hold....
H.J. HEINZ CO. $45 (New York symbol HNZ; Income Portfolio, Consumer sector; Shares outstanding: 319.2 million; Market cap: $14.4 billion; WSSF Rating: Above average) is one of the world’s biggest food companies. Overseas markets supply roughly half of Heinz’s sales. Its flagship product, Heinz Ketchup, accounts for over 60% of ketchup sales in the United States. The company also makes other condiments, as well as frozen and canned foods and baby food. Heinz’s revenue grew from $8.2 billion in 2003 to $8.9 billion in 2005, but fell to $8.6 billion in 2006 (fiscal years end April 30). Earnings before unusual items rose from $2.03 a share (total $713.4 million) in 2003 to $2.34 a share ($827.7 million) in 2005, but fell to $2.18 a share ($750.2 million) in 2006....
VERIGY LTD. $26 (Nasdaq symbol VRGY; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 59.7 million; Market cap: $1.6 billion; WSSF Rating: Speculative) earned $0.52 a share (total $32 million) before unusual items in its third fiscal quarter ended July 31, 2007. That’s down 23.5% from the $0.68 a share ($38 million) in earned a year earlier. Revenue fell 4.7%, to $204 million from $214 million. Revenues and profits slowed due to overall weakness in the computer chip industry from a year earlier. But thanks to its balanced portfolio of test systems used in the production of computer chips, revenues in the latest three months were up 11% from $183 million in the prior quarter ended April 30. Earnings per share rose 38.9% from $0.36. Verigy is a buy for aggressive investors only.
WASHINGTON MUTUAL INC. $37 (New York symbol WM; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 864.6 million; Market cap: $32.0 billion; WSSF Rating: Average) plans to refinance adjustable-rate subprime loans for borrowers who are up-to-date with their payments, but could face problems in the near future. That cuts the risk of selling re-possessed homes in a weak real estate market. Subprime loans represent about 10% of Washington Mutual’s total loans backed by real estate. So refinancing, and in some cases writing off those loans will hurt earnings. Meanwhile, the company’s banking and credit card businesses are still doing a good job attracting new customers. Strong growth from its non-mortgage operations (90% of total revenue) should let it offset losses in the subprime market, and let it keep paying its $2.24 dividend, which yields 6.1%....
Today’s turmoil in mortgage lending is mainly due to the lack of demand for subprime mortgage-backed securities. That’s where smaller lenders package together and sell their riskier loans to third parties to raise cash for new loans. But well-established banks like these three can hang on to their mortgage loans for much longer periods of time. As well, their wider sources of income will help them overcome the current problems, and let them capture a bigger part of the mortgage market as smaller lenders fail. BANK OF AMERICA CORP. $51 (New York symbol BAC; Income Portfolio, Finance sector; Shares outstanding: 4.4 billion; Market cap: $224.4 billion; WSSF Rating: Above average) has little exposure to subprime mortgages, but it aims to profit from the recent turmoil. It has agreed to buy $2 billion worth of convertible preferred shares from mortgage specialist Countrywide Financial Corp. (New York symbol CFC). If converted, Bank of America would own about 16% of Countrywide. This investment is roughly a third of the $5.8 billion or $1.29 a share Bank of America earned in its latest quarter. While it adds to its risk, it could have a big payoff. Rules that ban a single bank from controlling more than 10% of U.S. deposits have hurt Bank of America’s ability to expand. However, the Countrywide investment should improve its 7% share of the mortgage market....
IDEXX LABORATORIES INC. $112 (Nasdaq symbol IDXX; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 30.6 million; Market cap: $3.4 billion; WSSF Rating: Average) makes equipment that veterinarians use to detect disease in pets and livestock. It also makes systems that detect contaminants in water and milk. Idexx stands to gain from increasing levels of pet ownership. Based on this trend, we’ve raised its WSSF Rating, to ‘Average’ from ‘Extra risk’. The company uses acquisitions to expand its current product lines or geographic reach. In the first half of 2007, it spent $84.4 million to buy several small firms. Foreign markets now account for a third of its revenue....