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
MAJOR DRILLING. $25.40 (Toronto symbol MDI; SI Rating: Speculative) (www.majordrilling.com; 1-866-264- 3986; Shares outstanding: 23.2 million; Market cap: $587.7 million) is one of the world’s largest drilling service companies serving the mining industry. Its principal business is mineral exploration drilling for mining and mineral exploration companies. In the three months ended October 31, 2006, Major Drilling’s revenues rose 18.8%, to a record $101.8 million from $85.8 million. Ongoing earnings rose 60.9%, to a record $13 million or $0.56 a share, from $8.1 million or $0.36 a share. Cash flow per share was $0.86 a share in the latest quarter. Major Drilling holds cash of $36.8 million or $1.59 a share. Long-term debt is low at $20.2 million or 10% of equity. Major Drilling continues to benefit from high prices of nickel, copper, gold, silver and zinc, which spur exploration activity. The company has also diversified its drilling services into the energy sector. It currently has seven rigs drilling for oil and gas in the U.S....
ADOBE SYSTEMS INC. $40.20 (Nasdaq symbol ADBE; SI Rating: Average) (408-536- 6000; www.adobe.com; Shares outstanding: 583.3 million; Market cap: $23.5 billion) reported 33.7% higher revenues in the three months ended December 1, 2006, up to $682.2 million from $510.4 million. Ongoing earnings per share rose 6.5%, to $0.33 from $0.31. Adobe holds cash of $2.3 billion or $3.91 a share, and it has no long-term debt. The company has plenty of financing for new product development. Adobe spends a high 21% of sales on research and development. However, it faces competition from freeware versions of some of its software. As well, Adobe’s high p/e of 34 makes it vulnerable to any bad news....
LINAMAR CORP. $14.80 (Toronto symbol LNR; SI Rating: Speculative) (519-836-7550; www.linamar.ca; Shares outstanding: 69.8 million; Market cap: $1.0 billion) makes precision- machined components, assemblies and systems for the North American and European car and light to heavy truck markets. The company focuses on the highly engineered systems of vehicles such as engines, transmissions, brakes, steering and suspensions. The company also produces agricultural implements in Hungary for worldwide sale. Linamar reported slightly lower sales in the three months ended September 30, 2006, to $528.1 million from $529.7 million a year earlier. Lower production from North American car makers, and the impact of a strengthened Canadian dollar, were partly offset by increased heavy truck sales. Earnings per share fell 34.4%, to $0.21 from $0.32. However, cash flow per share fell just 5%, to $0.76 from $0.80. Linamar’s long-term debt of $173.7 million is a reasonable 22% of equity. The company’s shares yield 1.6%....
When investing aggressively, it’s particularly crucial to downplay stocks that are getting a lot of highly favourable coverage by brokers and the media. You may get the feeling that these high-profile stocks are can’t-miss investments safe to buy and forget. That’s exactly the wrong thing to do. In fact, your in-the-limelight stocks are the ones most at risk of big losses in a setback....
EUROPEAN GOLDFIELDS $5.09 (Toronto symbol EGU; SI Rating: Speculative) (44 (20) 7408 9534; www.egoldfields.com; Shares outstanding: 114.8 million; Market cap: $584.3 million) owns mineral properties in Greece and Romania. The company is headquartered in the UK. European Goldfields holds a 65% interest in Hellas Gold, which owns three gold and base metal deposits in Northern Greece. The deposits are the Stratoni zinc/lead/silver property, the Olympias gold/ zinc/lead/silver project and the Skouries copper/gold property. Production started at Stratoni in September 2005. The company also began selling off a stockpile of gold-bearing ore concentrates from the former-producing Olympias mine in July 2006. Hellas Gold is now applying for permits to develop the Skouries and Olympias projects....
MOTOROLA INC. $19.85, New York symbol MOT, jumped 7% after billionaire investor Carl Icahn, who owns 1.4% of Motorola’s stock, said he plans to seek a seat on the company’s board of directors. Mr. Icahn says he wants Motorola to enhance its stockholder value by using its cash of $15.6 billion ($6.25 a share) to buy back stock and increase its $0.20 dividend (1.0% yield). He may also pressure Motorola to spin off some of its divisions as independent companies. That would let the company focus on improving profits and market share at its core mobile phone business. Motorola is a buy....
MICROSOFT CORP. $30.60, Nasdaq symbol MSFT, earned $0.26 a share in its second fiscal quarter ended December 31, 2006, down 23.5% from $0.34 a year earlier. The company is absorbing costs associated with new hardware and software that are not yet profitable but could make major profit contributions in the next few years. Revenue in the quarter grew 5.9%, to $12.5 billion from $11.8 billion. This figure excludes $1.5 billion in revenue from sales of coupons that let buyers of new computers upgrade to the new Windows Vista operating system. Microsoft has already released the corporate version of Vista, and will start selling the consumer version next week. Vista will probably have a hard time matching the huge initial sales of previous upgrades, but should generate substantial cash flow. The company’s Xbox 360 video game machine is also selling well, and new services like movie downloads will expand its revenue....
INTEL CORP. $20.82, Nasdaq symbol INTC, earned $0.26 a share in the fourth quarter of 2006, down 35.0% from $0.40 a year earlier. The company began expensing stock options in 2006, which cut its earnings in the most recent quarter by $0.04 a share. Restructuring costs also weighed on earnings in the latest quarter. Revenue fell 4.9%, to $9.7 billion from $10.2 billion, due to a price war with rival chipmaker Advanced Micro Devices. But Intel spent 17% of its 2006 revenue of $6.10 a share on research, so it’s more profitable than it looks. The company is phasing out older chips in favor of its more powerful dual-core and quad-core chips. But Intel is still ramping up production of these new products. The costs of running plants below full capacity cut its gross profit margin in the fourth quarter to 49.6% of revenue, from 61.8% a year earlier. Intel feels its margins will hover around 50% in 2007. The news spooked investors, and the stock fell roughly 7%. But Intel’s new chips should help it win back market share it lost to AMD in the past two years, particularly as next month’s release of the new Microsoft Windows Vista operating system spurs computer sales....
APPLE COMPUTER INC. $94.62, Nasdaq symbol AAPL, shot up this week from around $85 after the company unveiled its new iPhone. This combination mobile phone/iPod music player is about three times more expensive than regular phones, but its unique buttonless design and innovative features will probably turn it into a strong seller. The company also wisely priced the iPhone high enough so that it won’t cut into sales of its regular iPods. Cisco Systems has sued Apple over use of the name iPhone. This could threaten Apple’s plan to launch the iPhone in June, but the two sides are likely to settle. Apple also plans to start selling “Apple TV” in the next few weeks. This device lets users watch downloaded movies on their home TV sets, and should spur sales at Apple’s iTunes web site. Since consumer electronics now account for a major portion of its sales, the company plans to drop the word “computer” from its name and call itself “Apple Inc.”....
ARKANSAS BEST CORP. $39.75, Nasdaq symbol ABFS, has struggled in the past few months, as weaker sales of consumer and industrial goods hurt demand for its trucking services. Rising fuel costs and upgrades to its fleet also squeezed profits. But the stock jumped several dollars this week, partly in response to the dive in oil prices, which will cut its fuel costs. In addition, retailers will soon have to re-stock their stores after the busy Christmas buying season. The stock is still cheap at just 11 times earnings, while the $0.60 dividend yields 1.5%. Arkansas Best is a buy for aggressive investors. IDEARC INC. $29.53, New York symbol IAR, was a wholly owned subsidiary of Verizon Communications until November 2006, when Verizon spun off Idearc through a special dividend of one Idearc share for every 20 Verizon shares they held....