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
FEDEX CORP. $91.71, New York symbol FDX, fell 9% after it warned that higher fuel costs would cut its earnings in the current quarter to $1.50 a share from earlier forecasts of $1.70 a share. However, in the past FedEx has successfully passed along its higher fuel charges to its customers, and will probably do so again. The stock now trades at just 14.0 times its likely fiscal 2008 earnings of $6.55 a share, which is cheap in light of FedEx’s leading market position and expanding international operations, particularly in Asia. FedEx is a buy....
LIMITED BRANDS INC. $26.21, New York symbol LTD, has agreed to sell 67% of its Express clothing chain to private investors for $548 million ($425 million after-tax). To put that in perspective, it earned $439.8 million or $1.08 a share in its fourth fiscal quarter ended February 3, 2007. The company is also looking at selling all or part of its Limited clothing chain. The sale will let the company focus on its Victoria’s Secret (lingerie) and Bath & Body Works (personal care products) operations, which supply 80% of its revenue. Although sales at these chains have suffered lately, they face less competition than the clothing operations from big department stores. The company also cut its profit forecast for the current fiscal year, from $1.80 a share to $1.60. The stock fell 5% on that news, and now trades at 16.0 times the new estimate. But Limited Brands has a history of increasing its sales per store, and will probably use some of the cash from the Express sale to buy back stock or increase its $0.60 dividend (which already yields 2.3%)....
ALCOA INC. $38.03, New York symbol AA, has offered to buy smaller Canadian rival Alcan Inc. (New York symbol AL) for roughly $27 billion in cash and stock. The combined company would be the world’s largest aluminum producer, accounting for 20% of global output and annual revenue of $54 billion. This is a huge commitment for Alcoa, which earned $2.5 billion or $2.90 a share in 2006, on revenue of $30.4 billion. Alcoa feels it can cut the merged company’s annual expenses by $1 billion after three years. However, the deal faces several hurdles. A takeover could threaten Alcan’s low-cost electrical power deals with some Canadian provinces, which would drive up production costs. Anti-trust regulators will probably force Alcoa to sell some of its aluminum auto parts and aerospace equipment operations....
DOW JONES & CO. INC. $55.80, New York symbol DJ, jumped 55% after News Corp. offered to buy the company for $60.00 a share, probably in some combination of cash and News Corp. stock. News Corp. owns several media properties, including Fox Broadcasting and the New York Post. It feels The Wall Street Journal and other Dow Jones publications and web sites will strengthen the new business-news cable channel it plans to launch later this year. The Bancroft family owns 82.4% of Dow Jones’ class B shares, which carry 10 votes each. This plus their regular common stock holdings gives them 64.2% of the total votes. Right now, roughly half of the family’s members oppose the News Corp. offer. However, a formal rejection could trigger a lawsuit accusing the company’s directors of breaching their fiduciary duty to act in the best interests of all stockholders....
FORD MOTOR CO. $8 (New York symbol F) stopped paying dividends last year as part of its major restructuring plan. Consequently, we’ve dropped Ford from our Income Portfolio, and added it to our Aggressive Growth Portfolio. It could take several years for the company to bring its costs in line with sales, which adds to its uncertainty. Ford could improve its prospects with asset sales, or possibly merging with another carmaker. Hold. NCR CORP. $50 (New York symbol NCR) aims to spin off its Teradata division as a separate company in the third quarter of 2007. NCR will finalize the terms of the spin-off in the next month or so. Teradata helps businesses capture and analyze data such as customer buying habits and trends. The spin-off should help unlock NCR’s value. Buy. ADOBE SYSTEMS INC. $43 (Nasdaq symbol ADBE) recently released Creative Suite 3, a collection of programs for graphic design professionals. That should spur sales, but the company is facing growing competition from cheaper alternatives. Hold.
HEWLETT-PACKARD CO. $42 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.7 billion; Market cap: $113.4 billion; WSSF Rating: Above average) is one of the world’s leading makers of computers and electronic devices. Products include printers and digital cameras (29% of 2006 revenue, 49% of profit), personal computers (31%, 14%), business computers (19%, 18%), computer services (17%, 18%), financing, software and other (4%, 1%). Customers outside North America account for two-thirds of its revenue.
Big restructuring fuels profit gains
Hewlett’s revenues grew at a compound annual rate of 6.1%, from $72.3 billion in 2002 to $91.7 billion in 2006 (fiscal years end October 31). Thanks to a major restructuring plan that streamlined its manufacturing and sales operations, profits before non-recurring items rose from $0.79 a share (total $2.4 billion) in 2002 to $2.03 a share ($5.8 billion) in 2006, or 26.6% compounded annually....
PHILIPS ELECTRONICS N.V. ADRs $42 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $46.2 billion; WSSF Rating: Average) earned 0.79 Euros a share in the first quarter of 2007, up sharply from 0.13 Euros a share a year earlier (1 Euro = $1.36 U.S.). Most of the gain came from the recent sale of an investment. Sales fell 3.2%, to 6.0 billion Euros from 6.2 billion Euros, due to last year’s sale of its chip-making business. On a comparable basis, sales rose 3%. Philips will probably use the cash from recent asset sales to acquire smaller companies that enhance its core businesses (medical equipment, consumer electronics and lamps). It may also buy back more of its stock, or pay a special dividend....
CHEVRON CORP. $78 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.2 billion; Market cap: $171.6 billion; WSSF Rating: Above average) has teamed up with WEYERHAEUSER CORP. $77 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 241.0 million; Market cap: $18.6 billion; WSSF Rating: Average) to develop new ways to make biofuels such as ethanol out of wood. Right now, ethanol comes mainly from corn. However, rising ethanol production has led to much higher corn prices. Chevron and Weyerhaeuser feel turning scrap wood into ethanol could broaden their revenue sources, and improve their image with politicians and environmentalists. We see both Chevron and Weyerhaeuser as buys....
INTEL CORP. $22 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.8 billion; Market cap: $127.6 billion; WSSF Rating: Above average) spends around 15% of its revenue of $6 a share on research, which has helped it launch several promising new computer chips in the past two years. The company now hopes to improve its share of the flash memory chip market. Manufacturers of mobile phone and digital cameras use flash chips to retain information without power. Intel now is working on a new type of flash chip that lasts longer, stores more information and uses less power. If successful, this process could eventually replace computer hard drives....
AMEREN CORP. $52 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 206.7 million; Market cap: $10.7 billion; WSSF Rating: Average) provides electrical power and gas to 2.4 million customers in Missouri and Illinois. In the past year, severe storms have cut service to many of Ameren’s customers. Consumer groups are now pressuring regulators to force Ameren to compensate customers who lose their power for 48 consecutive hours. That could cost Ameren millions of dollars. In 2006, Ameren’s profit fell 11.9% to $2.66 a share (total $547 million) from $3.02 a share ($606 million) a year earlier. If you disregard storm costs and other unusual items, the company would have earned $2.92 a share in 2006, which implies a 3.3% drop. Revenue crept up to $6.9 billion from$6.8 billion....