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
BORDERS GROUP INC. $21.32, New York symbol BGP, has struggled lately, due to strong price competition from Internet booksellers and discount retailers. It earned $1.61 a share before unusual items in its fourth fiscal quarter ended February 3, 2007, down 13.9% from $1.87 a year earlier. Sales rose 3.4%, to $1.5 billion from $1.45 billion. However, same-store sales fell 2.8% at its superstores, and 6.2% at its Waldenbooks mall-based chain. The company aims to improve profits with several new initiatives. It plans to close or sell half of its mall-based stores and form its own publishing operation. It will also launch its own bookselling new web site, to replace its current venture with Amazon. Borders is also looking at selling its international operations, or transforming them into franchises. Each of the facets of this plan makes sense to us, but it will take at least a year for Borders to complete them all. However, profits should begin to rise again in 2008. The company will probably maintain its $0.44 dividend, which yields 2.1%....
WASHINGTON MUTUAL INC. $39.88, New York symbol WM, fell 5% on news that delinquencies among subprime borrowers rose to a four-year high. These borrowers have below-average to poor credit ratings. In the past few years, however, relatively low interest rates and rising real estate values have helped keep their default rates down. Subprime borrowers often choose adjustable rate mortgages, which are more likely to go into default than fixed-rate mortgages when interest rates are rising. However, subprime mortgages accounted for just 8% of Washington Mutual’s total loans in 2006. The company limits its exposure to this segment by selling subprime loans to third parties. Higher credit losses will probably weigh on Washington Mutual’s growth in 2007. But the company’s expansion into higher margin loans, such as credit cards, should help offset lower profits from mortgages....
ALLTEL CORP. $61.59, New York symbol AT, may soon decide to put itself up for sale, to take advantage of the consolidation trend in the telecommunications industry. However, likely buyers such as AT&T and Verizon would face huge anti-trust hurdles. Even without a takeover, Alltel still has plenty of long-term appeal. Its focus on smaller cities and rural areas lets it avoid direct competition with larger wireless providers. It’s also doing a good job of expanding its revenue by offering new services. Alltel is a buy....
SNAP-ON INC. $51 (New York symbol SNA) earned $0.59 a share before unusual items in the fourth quarter of 2006, up 22.9% from $0.48 a year earlier. Most of that gain is due to the benefits of a restructuring plan and a recent acquisition. Revenue grew 16.4%, to $656.0 million from $563.4 million. Cost savings should continue to spur earnings in 2007, but the stock is expensive in relation to its prospects. Hold. T. ROWE PRICE GROUP INC. $50 (NASDAQ symbol TROW) has increased its quarterly dividend 21.4%, from $0.14 a share to $0.17. The new annual rate of $0.68 yields 1.4%. The company is doing a good job attracting new mutual fund clients, and it stands to profit from rising equity markets. Buy. AMEREN CORP. $53 (New York symbol AEE) spent about $0.26 a share in 2006 to repair power lines and other operations due to severe storms in Missouri. Rising fuel and interest costs also hurt its profit growth. But rate hikes and the expiry of some low-margin power supply contracts should improve its earnings in 2007. Buy....
MICROSOFT CORP. $29 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 9.8 billion; Market cap: $284.2 billion; WSSF Rating: Above average) is the world’s largest maker of computer software. Its Windows operating system runs about 80% of the world’s computers, while its Office suite of programs dominates the business software market. Sales grew from $28.4 billion in 2002 (fiscal years end June 30) to $44.3 billion in 2006, or 11.8% compounded annually. Profits rose from $0.94 a share (total $10.4 billion) in 2002 to $1.20 a share ($12.6 billion) in 2006. Microsoft spends 15% of its revenue on research, so it’s more profitable that it appears. The stock has stayed in a narrow range in the past few years, due to its anti-trust problems and slowing sales growth. But Microsoft’s profits have caught up with its stock price, and its new products enhance its long-term prospects....
DIEBOLD INC. $48 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 65.5 million; Market cap: $3.1 billion; WSSF Rating: Average) earned $0.41 a share (total $27.1 million) from continuing operations in the three months ended December 31, 2006. If you disregard restructuring charges and writedowns, the company would have earned $0.77 a share. That’s a big improvement over the $0.15 a share ($10.4 million) Diebold earned in the year-earlier quarter. Revenue rose 1.8%, to $825.4 million from $810.6 million. So far, Diebold has cut $12 million from its annual expenses, and feels it can find an additional $23 million in savings in 2007. It aims to cut its annual costs by $100 million by the end of 2008. The company will use some of these savings to buy back 4% of its stock. It also raised the quarterly dividend 9.3%, from $0.215 a share to $0.235. The new annual rate of $0.94 yields 2.0%. Sales of ATMs (Automated Teller Machines) are still weak in the United States, as banks delay new orders in the face of soft loan demand. However, rising prosperity in China and other fast-growing countries should spur demand for ATMs....
LA-Z-BOY INC. $15 (New York symbol LZB; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 51.4 million; Market cap: $771.0 million; WSSF Rating: Average) earned $0.13 a share from continuing operations in its third fiscal quarter ended January 27, 2007, down 31.6% from $0.19 a year earlier. Sales fell 9.6%, to $403.9 million from $446.6 million. Despite the poor results, La-Z-Boy’s restructuring plan is starting to work. The profit margin at its casegoods (wood furniture) division improved to 9.1% from 7.9% a year earlier. Margins at its upholstery division held steady at 7.6%, despite an 11.8% drop in sales. The company has agreed to sell its Sam Moore Furniture division, which makes upscale upholstered chairs. The company did not reveal the price, but the sale will help it focus on its core furniture manufacturing operations and stores....
HARTE-HANKS INC. $28 (New York symbol HHS; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 76.9 million; Market cap: $2.2 billion; WSSF Rating: Average) earned $0.39 a share in the fourth quarter of 2006, up 2.6% from $0.38 a year earlier. Strong gains from its direct marketing division offset lower income at its shoppers newspapers unit due to rising paper and postage costs. Revenue rose 4.1%, to $313.2 million from $301.0 million. The company also increased its quarterly dividend 16.7%, from $0.06 a share to $0.07. The new annual rate of $0.28 yields 1.0%....
TEXAS INSTRUMENTS INC. $31 (New York symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.5 billion; Market cap: $46.5 billion; WSSF Rating: Average) makes chips for a wide variety of electronic devices, such as cellphones and digital cameras. The stock has struggled lately, as sales of entry-level phones have outpaced sales of phones with more features. The company earns higher profits from its more advanced chips. The chip is the most expensive part of a cellphone, and manufacturers want chipmakers to help them cut the cost of new phones. Consequently, Texas Instruments has developed a new chip that cuts the cost of a basic phone by 25%. It feels that this chip will expand its market share, which would help offset the lower profit margins. Right now, less than 25% of people in China and India use cellphones, so there’s plenty of room to grow....
The appeal of book superstores has fueled strong growth at Barnes & Noble and Borders in the past few years. They now have roughly half of the U.S. market, largely at the expense of independent stores. To survive, independents are becoming more specialized. That will make it harder for Barnes & Noble and Borders to grow. Still, ongoing improvements to their stores should continue to spur traffic and sales. BARNES & NOBLE INC. $43 (New York symbol BKS; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 65.6 million; Market cap: $2.8 billion; WSSF Rating: Average) is the largest bookseller in the United States, with 681 full-size stores and 118 mall-based stores. It has no foreign operations. Due to a lack of best-selling titles and growing competition from online booksellers, same-store sales during the busy Christmas shopping season fell 0.1%. Sales should improve over the next few months due to this summer’s release of the final Harry Potter novel. TV-host Oprah Winfrey is once again recommending books on her show, which should also spur sales....