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
Fast-food stocks have been among our biggest gainers since the 2002 stock market slump. Despite increasing concerns over nutritional content, Americans are eating more of their meals outside of the home. Fast-food is also an increasingly affordable luxury in developing countries. However, rising gas prices could cut customer traffic and put a damper on profit growth. Rising food and labor costs will also squeeze margins. We designed our system to zero in on fast-food companies whose strong brands and market share will help them overcome these setbacks. Here are three top examples....
BANK OF AMERICA CORP. $48 (New York symbol BAC; Income Portfolio, Finance sector; Shares outstanding: 4.4 billion; Market cap: $211.2 billion; WSSF Rating: Above average) earned $1.28 a share (total $5.8 billion) in the three months ended June 30, 2007, up 7.6% from $1.19 a share ($5.5 billion) a year earlier. The most recent figure includes a $0.09 a share gain on the sale of some private equity funds. Revenue grew 7.8%, to $19.6 billion from $18.2 billion. The bank raised its loan loss provision by 79% due to the slump in the housing market. Still, bad loans are just 0.32% of total loans. Bank of America’s diverse sources of income, including credit cards and investment banking, also limit its exposure to housing. The bank aims to complete its $16 billion acquisition of LaSalle Bank by the end of 2007, following a ruling by a Dutch court that it can proceed with the purchase. LaSalle will greatly enhance Bank of America’s presence in the Midwest....
BAXTER INTERNATIONAL INC. $54 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 651.5 million; Market cap: $35.2 billion; WSSF Rating: Average) fell 5% after it recalled some models of its Colleague medication-delivery pumps. The recall affects just 4,500 of the roughly 280,000 pumps currently in use, so any charge to earnings will probably be small. In the second quarter of 2007, Baxter earned $0.72 a share before unusual items, up 53.2% from $0.47 a year earlier. Revenue grew 7.7%, to $2.8 billion from $2.6 billion, thanks mainly to strong sales of vaccines and its Advate hemophilia drug. The company spends 6% of its revenue of $16.40 a share on research, which it writes off as an ordinary expense. Baxter should earn $2.70 or so a share in 2007, excluding special items, and it trades at 20.0 times that stripped-down figure....
McKesson Corp. has overcome the accounting and anti-trust concerns that weighed on it early in the decade. Now the company can look forward to years of gains from several special pluses. As a drug distributor, it stands to gain from the aging of the baby boomers and the inevitable expansion in their drug needs. In addition, McKesson makes more money on generic versions of drugs than on the patented variety. Patents on a broad range of widely used drugs are set to expire in the next few years, and the switch to generics should expand its profit margins. To top it off, McKesson has a small but growing business in software and services that help health facilities manage drug inventories, patient records and other data. As a leader in its field, it has a huge competitive advantage. The work is too crucial and mistakes potentially too costly (in patient security and legal risk) for clients to choose another provider, even if McKesson charges premium prices....
If last week’s downturn makes you wonder if you should sell all your stocks, keep in mind that the world economy and stock market stand to gain from three special factors, just like McKesson. Starting in the early 1990s, I’ve regularly pointed out that these special factors are often overlooked or under-estimated. They are: 1. The baby boomers remain in the prime of their economic lives. Boomers are earning, spending and saving more than ever before. (Bank savings rates are low, but boomers are “saving” by building up equity in homes, stock portfolios and retirement accounts). Capital accumulation raises productivity and speeds up growth....
HOME CAPITAL GROUP INC. $38.39 (Toronto symbol HCG; SI Rating: Extra Risk) (1-800-990-7881; www.homecapital.com; Shares outstanding: 34.5 million; Market cap: $1.3 billion) is a federally regulated trust company offering residential first mortgages to small business owners, the self-employed and others who don’t meet the stricter criteria of larger, traditional lenders. Home Capital reports that revenues rose 31% in the three months ended March 31, 2007, to $81.7 million from $62.4 million. Total assets increased 25.3%, to $4.2 billion from $3.3 billion. Earnings per share rose 47.6% in the latest quarter, to $0.62 from $0.42. The company’s shares now yield 1.0%. Results in the latest quarter included a contribution of $4.7 million from the company’s consumer lending services. These services include Home Trust’s VISA card, which lets cardholders borrow against the equity in their homes....
AUR RESOURCES $41.85 (Toronto symbol AUR; SI Rating: Speculative) (416-362-2614; www.aurresources.com; Shares outstanding: 98.4 million; Market cap: $4.1 billion) is up over $10 since Teck Cominco announced a friendly $4.1 billion cash and stock takeover bid for the company. Under Teck’s offer, each Aur shareholder will receive a pro-rated total of approximately $30.75 in cash and 0.2187 of a Teck share. That’s based on Teck’s plan to pay out a maximum of $3.1 billion in cash and to issue a maximum of about 22 million shares. At today’s price for Teck, that works out to $41.85. We first recommended Aur as a Pick of the Month in January, 2002 at $3 a share. That works out to a 1,295% gain for our readers on today’s share price....
LEON’S FURNITURE $13.89 (Toronto symbol LNF; SI Rating: Average) (416-243-7880; www.leons.ca; Shares outstanding: 70.9 million; Market cap: $985.3 billion) has split its shares on a four-for-one basis. Leon’s is still a buy. YAMANA GOLD $13.10 (Toronto symbol YRI; SI Rating: Speculative) (416-815-0220; www.yamana.com; Shares outstanding: 353.3 million; Market cap: $4.6 billion) and NORTHERN ORION RESOURCES $6.43 (Toronto symbol NNO; SI Rating: Extra risk) (604-689-9663; www.northernorion.com; Shares outstanding: 154.1 million; Market cap: $990.8 million) are encountering resistance in their joint takeover bid for Meridian Gold, $30.90, symbol MNG on Toronto....
COMPTON PETROLEUM $11.50 (Toronto symbol CMT; SI Rating: Speculative) (403- 237-9400; www.comptonpetroleum.com; Shares outstanding: 129.1 million; Market cap: $1.5 billion) now gets about a quarter of its production from crude oil and liquids and three-quarters from natural gas. Now the company plans to sell all of its oil properties and produce only natural gas. It expects natural gas prices to strengthen over the next few years. Compton is raising its capital spending to $450 million this year, up 20% from a previously planned $375 million. This includes drilling 350 wells in the second half of this year, all looking to strike gas....
MAJOR DRILLING. $47.60 (Toronto symbol MDI; SI Rating: Speculative) (www.majordrilling.com; 1-866-264- 3986; Shares outstanding: 23.4 million; Market cap: $1.1 billion) is one of the world’s largest drilling service companies serving the mining industry. In the three months ended April 30, 2007, Major Drilling’s revenues rose 45.1%, to a record $129 million from $89 million. Earnings rose 91.5%, to a record $17.8 million or $0.77 a share, from $9.3 million or $0.40 a share. Cash flow per share was $1.07 a share in the latest quarter. Major Drilling holds cash of $25 million or $1.08 a share. Long-term debt is low at $18.1 million or 8% of equity....