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
ALCOA INC. $47.35, New York symbol AA, jumped 10% after losing out in its attempt to buy Canadian aluminum producer Alcan Inc. Anglo-Australian mining company Rio Tinto Ltd. agreed to buy Alcan for $101 a share in cash. The Rio offer is about one third richer than Alcoa’s stock-and-cash offer for Alcan, recently worth roughly $77 per Alcan share. Alcoa has now dropped its Alcan offer. This makes it more likely that Alcoa will attract a takeover offer from some other big mining company, such as BHP Billiton. Alcoa earned $0.81 a share from continuing operations in the second quarter of 2007, down 4.7% from $0.85 a year earlier. The latest quarterly figure includes a $0.04 charge for the temporary shutdown of two facilities, and $0.02 in extra costs related to the Alcan bid. Revenue rose 3.9%, to a record $8.1 billion from $7.8 billion, thanks to higher aluminum prices and volumes....
APPLE INC. $132.30, Nasdaq symbol AAPL, rose to a new all-time high following the successful launch of the iPhone. The new product uses an estimated $266 worth of parts, which suggest it will produce a gross profit of roughly $250 per unit. Apple aims to sell 10 million iPhones in the first year, which works out to an aggregate profit of $2.5 billion. The company earned just $2.0 billion or $2.27 a share in the fiscal year ended September 30, 2006. However, Apple is unlikely to dominate the mobile phone market in the same way its iPod quickly captured a big part of the music player market. If Apple fails to meet its iPhone sales target, the stock could fall sharply. Apple is still a hold....
H&R BLOCK INC. $23.03, New York symbol HRB, moved up on news that investment firm Breeden Capital Management, which is headed by a former SEC chairman, aims to elect three of its nominees to H&R Block’s 11-member board of directors. Breeden owns 1.86% of H&R, and will probably put pressure on the company to cut costs or sell out to private investors. Meanwhile, H&R’s outlook is improving. The upcoming sale of its subprime mortgage subsidiary cuts its long-term risk, and will let it focus on its more profitable tax preparation and accounting operations. The extra pressure from Breeden should also push up the stock price. H&R Block is a buy....
TOYOTA MOTOR CORP. ADRs $124 (New York symbol TM) has sold roughly 1 million hybrid vehicles in the past 10 years. It now aims to sell 1 million hybrids annually, which will help it comply with stricter emission standards. Hybrids still account for less than 5% of Toyota’s production, but its leadership in this field gives it an advantage over other carmakers. Buy. WACHOVIA CORP. $52 (New York symbol WB) will probably complete its acquisition of brokerage firm A.G. Edwards in the next few months, now that anti-trust regulators have approved the deal. Competition for high-quality financial advisors among brokerage firms is growing, and this deal expands Wachovia’s risk. But Wachovia can profit greatly by cross-marketing its other services to A.G. Edwards’ high-quality clientele. Buy. C.R. BARD INC. $82 (New York symbol BCR) has raised its dividend for 36 consecutive years. The new quarterly dividend of $0.15 a share, up 7.1% from $0.14, implies an annual rate of $0.60 (0.7% yield). Buy.
CHIPOTLE MEXICAN GRILL INC. (New York symbols CMG $82 and CMG.B $76; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 14.2 million (class A common) and 18.4 million (class B common); Market cap: $2.6 billion; WSSF Rating: Speculative) owns and operates over 600 Mexican food restaurants in 26 states. Chipotle sets itself apart from traditional fast-food restaurants by using only fresh ingredients and traditional cooking methods. This lets it charge slightly higher prices than competing chains. The company was a 92%-owned subsidiary of McDonald’s Corp. until January 2006. That’s when it issued class A shares (one vote per share) to the public at $22.00 a share....
JONES APPAREL GROUP INC. $28 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 108.9 million; Market cap: $3.1 billion; WSSF Rating: Average) has agreed to sell Barneys New York, its upscale clothing chain, for $770 million after taxes. To put that in context, Jones earned $251.8 million or $2.28 a share in 2006, excluding unusual items. Barneys was Jones’s fastest growing operation, so its sale will hurt the company’s overall growth. But Barneys’ profit margins were comparable to those of Jones’s other businesses, so the sale should have only a minor impact on earnings and cash flow. Jones will probably use the proceeds to pay down debt, invest in its core brands or buy back stock. It may also raise its current dividend of $0.56 a share (2.0% yield), or pay a special dividend....
MOTOROLA INC. $18 (New York symbol MOT; Conservative Growth Portfolio; Manufacturing & Industry sector; Shares outstanding: 2.3 billion; Market cap: $41.4 billion; WSSF Rating: Above average) is the world’s second-largest maker of mobile phones, after Nokia. This business accounts for about 60% of its revenue. It also makes equipment for telecommunication networks, and consumer products such as modems and personal video recorders. The stock got as high as $26 in October 2006, but has moved down due to the growing popularity of entry-level mobile phones, particularly in Europe and Asia. These models generate less profit for Motorola than its more expensive phones with built-in cameras, music players and other features. Slowing sales of these advanced models has expanded Motorola’s inventories. This has forced the company to cut prices to stimulate sales....
NCR CORP. $52 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 179.9 million; Market cap: $9.4 billion; WSSF Rating: Average) is a leading supplier of ATMs (automated teller machines), cash registers and bar code scanners, mainly to banks and retailers. The company also owns Teradata Data Warehousing, which helps businesses capture and analyze a wide variety of information, such as customer buying habits and inventory management. This information helps clients expand sales and make better decisions. Teradata accounts for roughly 30% of NCR’s total revenue. NCR plans to spin off Teradata as an independent company, probably in the third quarter of 2007. Investors will probably receive one Teradata share for each NCR share they own. NCR stockholders will only have to pay capital gains taxes when they sell their Teradata shares....
WINNEBAGO INDUSTRIES INC. $30 (New York symbol WGO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 31.6 million; Market cap: $948.0 million; WSSF Rating: Average) is struggling with higher gas prices and higher interest rates. Demand for its smaller, more fuel-efficient motor homes is growing, but they generate lower profits than Winnebago’s larger models. Higher labor and raw material costs are also squeezing its profits. The stock has moved down in the past few months, but a new share buyback plan should help support it. It now trades at 24.0 times the $1.25 a share it should earn in its current fiscal year. The company also raised its quarterly dividend 20%, from $0.10 a share to $0.12. The new annual rate of $0.48 yields 1.6%....
SONY CORP. ADRs $51 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $51.0 billion; WSSF Rating: Above average) has outfitted its new PlayStation 3 video game player with its Blu-ray high-definition DVD technology. Sony feels this will help Blu-ray become the dominant format for high-definition DVDs. The plan seems to be working. Blu-ray now has about 70% of the market. Video rental chain Blockbuster now plans to carry only Blu-ray titles, which should spur more demand for Blu-ray players. Sony is a buy....