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
Bank stocks have been among our top performers in the past few years, as an improving economy and low interest rates spurred strong demand for loans. Many banks have used their strong earnings to make acquisitions. Their bigger size gives them access to new clients and economies of scale. (However, a bigger market cap also limits the possibility of a takeover by a domestic or foreign competitor.) Although higher interest rates have slowed their earnings growth and increased the potential for loan write-offs, their prospects remain strong. Cost cuts and growing fee income will also help offset any drop in lending. Investors should aim to own one or two of these four banks. We like all four, but Bank of America is our top choice for new buying....
IPSCO INC. $106 (Toronto symbol IPS; SI Rating: Average) (800-667-1616; www.ipsco.com; Shares outstanding: 47.2 million; Market cap: $5.0 billion) produces steel at three North American steelworks: Regina, Saskatchewan; Montpelier, Iowa; and Mobile, Alabama. All three steelworks use electric arc furnace technology to convert scrap steel into liquid steel and then into slabs. The steel is then sold directly to customers or further processed at IPSCO’s finishing plants. Five coil processing plants cut plate and sheet to customer requirements. Six pipe mills produce pipe ranging from one and one-half inches up to 80 inches in diameter. In the three months ended September 30, 2006, IPSCO earned a record $197.1 million or $4.19 a share, up 47.1% from $134 million or $2.81 a share a year earlier. (All figures except share price in U.S. dollars.) Sales rose 37.3%, to $996.9 million from $726.1 million. Long-term debt of $292.2 million is a low 14% of shareholders’ equity. The company holds cash of $743.5 million or $15.75 a share....
Stocks that are low-priced in relation to earnings, book value or assets are sometimes called “value” stocks. But there may be reasons why these “value” stocks trade at such low prices. For example, the company may operate in a cyclical business. A low price earnings or price-book ratio may just reflect investors’ belief that earnings will fall or even disappear in the future. Steel is an example of a cyclical industry. Steel prices remain high, but have weakened lately, due to lower levels of oil and gas drilling, construction activity and demand from North American automakers. Customers are also using up inventories in anticipation of lower prices. IPSCO trades at a low price/earnings multiple. The stock has moved down in price lately from its record highs reached last year. We still like its long-term outlook, but in a situation like this, one bad quarter of earnings could spook investors and knock the stock’s price down further....
TRIMBLE NAVIGATION $55 (Nasdaq symbol TRMB; SI Rating: Speculative) (408- 481-6914; www.trimble.com; Shares outstanding: 55.7 million; Market cap: $3.1 billion) is acquiring @ROAD $7.35 (Nasdaq symbol ARDI; SI Rating: Speculative) (510-668-1638; www.atroad.com; Shares outstanding: 62.2 million; Market cap: $457.3 million) for $7.50 a share, for a total of $496 million. Both stocks are recommendations of Stock Pickers Digest. @Road shareholders will receive $5 per share in cash, and the remaining $2.50 per share in a mixture of cash and/or stock, in a ratio yet to be determined by Trimble. @Road develops GPS products for managing mobile work forces. Trimble makes GPS devices and technology for four main markets: Engineering & construction (68% of sales), Agriculture GPS products (15%), GPS Components (11%) and products for mobile workforces (6% of sales)....
NORTHGATE MINERALS CORP. $4.12 (Toronto symbol NGX; SI Rating: Speculative) (604-681-4004; www.northgateexploration.ca; Shares outstanding: 215.8 million; Market cap: $889.1 million) has increased the total estimated resource at its Young-Davidson property in Ontario by 33%, to 2.1 million ounces of gold from 1.5 million ounces. As well, one drill hole intersected strong gold showings, which suggests the presence of a major new gold zone. In the near term, Northgate’s Kemess South mine in B.C. is generating strong cash flow. Longer term, the development of the Kemess North and Young- Davidson properties provide growth prospects. Northgate is still a buy....
CALIAN TECHNOLOGIES $13.20 (Toronto symbol CTY; SI Rating: Speculative) (613-599- 8600; www.calian.com; Shares outstanding: 8.4 million; Market cap: $110.0 million) has moved up recently after signing a series of new contracts. Calian operates in two areas: personnel resourcing and communications systems. This includes offering a full range of hardware and software systems for testing, operating and managing satellite and other communications systems. The latest contract is for over $15 million to develop satellite earth stations for a new mobile communications network covering North America....
DEVON ENERGY CORP. $65.70 (New York symbol DVN; SI Rating: Speculative) (405-235-3611; www.devonenergy.com; Shares outstanding: 442 million; Market cap: $29.0 billion) has signed a production sharing contract with China National Offshore Oil Corporation, China’s largest offshore oil producer. The agreement calls for Devon Energy to conduct deepwater exploration over an eight-year period on a block in the western South China Sea and a block in the Pearl River Mouth Basin. Devon is committed to conduct two-dimensional seismic surveys and wildcat drilling over the eight years. Devon will cover exploration costs, while China National has a right to up to a 51% interest in any discovery. Devon Energy is still a buy....
KINGSWAY FINANCIAL SERVICES $24.55 (Toronto symbol KFS; SI Rating: Speculative) (905- 629-7888; www.kingsway-financial.com; Shares outstanding: 55.9 million; Market cap: $1.4 billion) offers automobile insurance for drivers considered too risky by standard auto insurers. Major insurers may also reject them due to their poor payment history, driving record, place of residence, age or vehicle type. The company’s other niche markets include long haul trucking, taxi, rental car and motorcycle insurance. Kingsway does three-quarters of its business in the U.S. Kingsway reported 19.4% higher earnings in the three months ended September 30, 2006, to $37.4 million, or $0.67 a share, from $31.3 million or $0.55. (All figures except share price in U.S. dollars.) The increase came from stronger operating results, especially in Canada, and increased investment income....
CAMECO CORP. $45.16 (Toronto symbol CCO; SI Rating: Extra Risk) (306-956-6200; www.cameco.com; Shares outstanding: 352.3 million; Market cap: $15.9 billion) has started work to restore the underground workings at its flooded Cigar Lake mine in Saskatchewan. The company is now drilling holes down to the access tunnel at Cigar Lake, and plans to pump concrete through the drill holes into the tunnel to create a plug downstream from where the rockfall and water inflow occurred. At full capacity, Cigar Lake is expected to produce 18 million pounds of uranium a year. That represents about 17% of world production. The flood was one factor in uranium’s 67% rise over the last year to today’s price of $72 U.S. a pound. Cameco Corp. is still a hold.
ARIAN SILVER $0.37 (Toronto symbol AGQ; SI Rating: Start up) (1-800-917-4102; www.ariansilver.com; Shares outstanding: 100.7 million; Market cap: $37.3 million) is active in silver exploration and development in Mexico. The company is headquartered in the UK. Arian’s current focus is on the Calicanto and San Celso projects in Zacatecas state, the recently acquired Tepal project in Michoacan State and the San José silver-base metal property in Zacatecas State. Arian has experienced management and its properties are in regions with producing mines. All of its concessions have had significant exploration work already done, and most have workings from former mines....