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.
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Growth Stocks Library Archives
LIMITED BRANDS INC. $28 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 397.4 million; Market cap: $11.1 billion; WSSF Rating: Average) hopes to cut its annual expenses by $100 million with a new restructuring plan. To put that in context, it earned $0.13 a share (total $52.9 million) in the quarter ended May 5, 2007. Limited Brands aims to complete the sale of 67% of its Express apparel chain for $548 million in July. The cash will help it double its current share buyback plan, from $500 million to $1 billion. The company now wants to sell its Limited clothing stores to focus on its more promising lingerie and personal care businesses. The company will also issue $1.25 billion in new debt. That will raise its long-term debt, from 55% of equity to 97%. That’s high, but the planned cost cuts should help it pay down the extra debt....
In the late 1990s, phone companies spent heavily upgrading their networks to handle Internet traffic. But they over-estimated the growth of the Internet, and these costs weighed on their earnings for several years. Despite the setbacks, these three well-managed telecoms kept paying above-average dividends. Their network investments are now starting to pay off. Online video and music content has spurred strong demand for high-speed Internet access. Demand for high-speed wireless access is also growing, and helping them compete with cable companies and other new Internet-based phone services. VERIZON COMMUNICATIONS INC. $41 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $118.9 billion; WSSF Rating: Average) provides local and long distance telephone service to over 45 million customers in 28 states....
IDEARC INC. $36 (New York symbol IAR; Income Portfolio, Consumer sector; Shares outstanding: 146.8 million; Market cap: $5.3 billion; WSSF Rating: Average) publishes over 1,200 yellow and white pages phone directories in 35 states. The company was a wholly owned subsidiary of Verizon Communications Inc. until November 2006. That’s when Verizon handed out its Idearc shares to its own investors as a tax-deferred dividend. Directories are a slow-growing business, but they still generate plenty of steady cash flow. Growing revenue from Idearc’s online properties, including the popular SuperPages.com search site, is helping offset weakness in the print division....
GENERAL MILLS INC. $59 (New York symbol GIS; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 346.4 million; Market cap: $20.4 billion; WSSF Rating: Above average) uses hedging contracts to lock in prices for wheat, oats and corn, key ingredients in its ready-to-eat cereals. However, rising prices for labor and fuel will probably increase costs at General Mills by 4.5% in the current fiscal year. The company now plans to raise cereal prices to offset the higher costs. It may also reduce the size of its boxes to match its competitors, and increase the price per ounce. General Mills plans to counteract its price increases with more advertising. Higher prices could slow growth but we think the company will keep up its $1.56 dividend, which yields 2.6%....
H&R BLOCK INC. $23 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 322.9 million; Market cap: $7.4 billion; WSSF Rating: Above average) aims to sell its Option One mortgage business in October for about $970 million. Option One specializes in mortgage lending to borrowers with poor credit histories. During the housing boom earlier in this decade, this business accounted for roughly half of H&R Block’s profits. But rising interest rates and falling housing prices have led to higher loan defaults and write-offs. Consequently, H&R Block lost $1.34 a share (total $433.6 million) in the fiscal year ended April 30, 2007. If you exclude Option One, it would have earned $1.15 a share ($374.3 million), up 29.2% from $0.89 a share ($297.5 million) in the prior fiscal year. Revenue grew 11.1%, to $4.0 billion from $3.6 billion....
To make the most of their asset value, companies may set up a subsidiary as an independent company, then hand out stock in the subsidiary to their own shareholders as a special dividend or spin-off. As a general rule, both the spin-off and its parent do better than comparable stocks for years afterwards. It often takes months or years for the above-average performance to get underway, but not always. One exception is Chipotle Mexican Grill, another is Idearc. Altria began its spin-off of Kraft Foods with a public offering in 2001. The stock stagnated for much of the time since then. But Kraft has strong brands, a steady dividend and a restructuring plan that could invigorate its earnings. A few earnings gains could spur heavy buying by institutional investors. KRAFT FOODS INC. $36 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $57.6 billion; WSSF Rating: Above average) is the world’s second-largest food company, after Nestle. It owns some of the industry’s top brands, including Kraft (cheese), Maxwell House (coffee), Nabisco (biscuits and cookies), Post (cereals) and Oscar Meyer (meats). North America accounts for two-third of its sales....
PRECISION DRILLING TRUST $27.11 (Toronto symbol PD.UN; SI Rating: Extra risk) (403-716-4500; www.precisiondrilling.com; Shares outstanding: 125.6 million; Market cap: $3.4 billion) is Canada’s largest provider of drilling and related services to the oil and gas industry. Precision’s drilling fleet consists of 244 land drilling rigs with depth capacities ranging up to 6,700 meters. Precision reported lower results in the three months ended March 31, 2007. Revenues fell 23.5%, to $410.5 million from $536.4 million. Earnings per share fell 29.6%, to $1.26 from $1.79. Cash flow per share fell 22.4%, to $1.56 from $2.01. Demand and prices for drilling services have fallen since last year, along with natural gas prices. Gas in storage remains above the five-year average. Precision’s customers have cut their 2007 natural gas drilling plans, although oil drilling will probably stay relatively constant. Natural gas represents about 75% of all drilling in Western Canada....
NORTHBRIDGE FINANCIAL CORP. $34.30 (Toronto symbol NB; SI Rating: Speculative) (416- 366-9544; no web site; Shares outstanding: 50.9 million; Market cap: $1.7 billion) reported 27% lower earnings per share in the three months ended March 31, 2007, to $0.89 from $1.22. However, the company has exited higher risk underwriting, including exposure to the energy business in the Gulf of Mexico. The year-earlier earnings also included significantly higher gains on investments. Northbridge now trades for just 1.4 times its book value of $25.36 and 12.9 times earnings....
OILEXCO INC. $13.92 (Toronto symbol OIL; SI Rating: Speculative) (403-262-5441; www.oilexco.com; Shares outstanding: 216.2 million; Market cap: $3.0 billion) has started production from its 100%-owned Brenda and 70%-owned Nicol oil finds in the UK North Sea. The company estimates that production from the three wells in Brenda and one well in Nicol will average 30,000 barrels of oil a day during the first full year of production. Oilexco also reports that drilling at its 40%-owned Huntington prospect in the North Sea has encountered a significant light oil discovery. The field could end up as the company’s largest find to date. As some of the biggest pools of oil in the North Sea are depleted, most major oil and gas companies, such as British Petroleum and RoyalDutch/Shell, have withdrawn from actively exploring the region. However, they have left behind significant quantities of oil and natural gas. The UK government is now encouraging smaller companies such as Oilexco to explore and exploit those pools of oil and gas....
HOME CAPITAL GROUP INC. $38.07 (Toronto symbol HCG; SI Rating: Extra Risk) (1-800-990-7881; www.homecapital.com; Shares outstanding: 34.5 million; Market cap: $1.3 billion) has opened its first branch in Quebec. The office, located in Montreal, will focus on servicing the Greater Montreal area, Gatineau and Quebec City, and surrounding areas. Home Capital is a federally regulated trust company offering residential first mortgages and other financial services to small business owners, the self-employed and others who don’t meet the stricter criteria of larger, traditional lenders. The company expects the Quebec branch to close over $100 million in mortgages in 2007. To put that into perspective, Home Capital had mortgage originations of $546.4 million during the first quarter of this year....