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
WASHINGTON MUTUAL INC. $46 (New York symbol WM; Aggressive Growth Portfolio, Finance sector; WSSF Rating: Average) is the largest thrift in the United States, with over 2,600 offices. It offers a wide variety of banking services, including deposit and checking accounts, mortgages and business loans. Washington Mutual’s revenue grew from $18.3 billion in 2001 to $19.0 billion in 2002, partly due to an acquisition. Asset sales and slowing demand for mortgages cut revenue to $16.0 billion in 2004. Earnings rose from $3.59 a share (total $3.1 billion) in 2001 to $4.05 a share ($3.9 billion) in 2002. Income fell to $3.8 billion in 2003, but per-share earnings rose to $4.12 a share due to share buybacks. Earnings fell to $2.81 a share ($2.5 billion) in 2004....
H&R BLOCK INC. $23 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; WSSF Rating: Above average) lost $0.49 a share in its second fiscal quarter ended October 31, 2006, compared with a loss of $0.25 a year earlier. The company makes most of its money in the six months leading up to the April income tax deadline, and typically loses money the rest of the year. Revenue fell 6.9%, to $563.2 million from $605.0 million. The company blamed the higher loss on problems with its Option One mortgage business, which supplies 10% of its revenue. This operation focuses on borrowers who fail to qualify for loans at regular banks. Consequently, rising interest rates and the slowdown in the housing market forced H&R Block to increase its loss provisions in the quarter. The company is now considering selling this unit, which would let it focus on its more profitable tax, banking and accounting operations....
MCCORMICK & CO. LTD. $40 (New York symbol MKC; Income Portfolio, Consumer sector; WSSF Rating: Average) is thinking about acquiring a controlling stake in one of India’s biggest makers of spices and other foods. Demand for processed foods in India is growing strongly as average incomes rise. McCormick could use it to expand sales in other parts of Asia. The company has also raised its quarterly dividend 11.1%, from $0.18 a share to $0.20. The new annual rate of $0.80 yields 2.0%. But at 24 times earnings, the stock is vulnerable to a sharp drop on any earnings setback. McCormick is a hold....
AGILENT TECHNOLOGIES INC. $34 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) completed its spin-off of Verigy Ltd. on October 31, 2006. Stockholders received 0.122435 of a Verigy share for each Agilent share held. Investors are only liable for capital gains taxes when they sell their new shares. For tax purposes, Agilent investors should allocate 94.22% of their total cost to their current Agilent shares, and 5.78% to their new Verigy shares. The company now has $2.3 billion ($5.54 a share) in cash, and $1.5 billion in long-term debt (0.4 times equity). That gives it plenty of flexibility to expand research (13% of its sales of about $11 a share) and buy back stock. It will probably look for small acquisitions that expand its presence in certain fast-growing markets, such as genetic research....
VERIGY LTD. $18 (Nasdaq symbol VRGY; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Speculative) makes automated equipment that tests the performance of computer chips. This equipment helps Intel Corp., Freescale Semiconductor Inc. and other chipmakers speed up production, and cut costs. Chip testing gear accounts for 75% of Verigy’s revenue. The remaining 25% comes from maintenance and other services. Verigy has its headquarters in Singapore, since customers in Asia account for nearly two-thirds of its revenue. It aims to focus on designing equipment, and is in the process of contracting out most of its manufacturing operations. The company was a wholly owned subsidiary of Agilent Technologies Inc. until June 2006 when Agilent sold 15% of its Verigy stock to the public at $15.00 a share. In October, Agilent handed out its remaining Verigy shares to its own stockholders....
APACHE CORP. $67 (New York symbol APA; Aggressive Growth Portfolio; Resources sector; WSSF Rating: Average) explores for and produces oil and natural gas in North America, the UK, Argentina, Australia and Egypt. Its reserves are roughly half oil and half natural gas. The company hedges just 10% of its production, which we feel is wise in today’s volatile energy environment. Not locking-in selling prices gives Apache more flexibility to adjust production to maximize profit. Apache likes to use acquisitions to expand its business and reserves. It recently acquired BP’s offshore operations in the Gulf of Mexico for $845 million. That’s down from an earlier price of $1.3 billion, since some investors exercised their options to purchase some of these fields....
WAL-MART STORES INC. $46 (New York symbol WMT; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) has received permission from Mexican finance regulators to offer banking services through its 565 stores in Mexico. This new business will likely lose money for the first three to four years. But it should have little trouble attracting clients, particularly low-income customers who avoid major Mexican banks due to their high transaction fees and interest rate charges. The experience should help Wal-Mart with its plans to roll out banking services in other countries, including the United States. The stock has moved down lately, mainly due to slowing sales. In November, same-store sales in the U.S. fell 0.1% due to weak sales of certain apparel and home furnishing items....
HEWLETT-PACKARD CO. $41 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) has agreed to pay $14.5 million to settle civil charges brought against the company’s former chair and other individuals, after they were accused of unlawfully spying on other directors and journalists. The settlement is less than 1% of the $1.7 billion or $0.60 a share that Hewlett earned in its fourth fiscal quarter ended October 31, 2006. Despite the scandal, the stock has held up well. Sales of Hewlett’s computers, printers and digital cameras continue to grow. The company also feels it still has plenty of room to drive down costs. It will probably earn $2.51 a share in fiscal 2007, and the stock trades at just 16.3 times that estimate....
Earnings growth at these three leading food processors has slumped in the past few years. Rising costs for ingredients, steel and plastic packaging, and transportation have cut into their profit margins. Consumer interest in healthier diets has also hurt interest in processed foods. But each of these three have restructured their businesses to focus on their most profitable products. Better efficiency should help shield them from increasing costs, and give them more predictable earnings. New investments in product development should also spur sales growth, and help them maintain their above-average dividend yields. H.J. HEINZ CO. $46 (New York symbol HNZ; Income Portfolio, Consumer sector; WSSF Rating: Above average) is one of the world’s largest producers of condiments and sauces, and accounts for 60% of ketchup sales in the United States. Other products include frozen meals, soups and baby foods....
When investing in techs, it’s essential to remember that these companies operate in the Manufacturing & Industry sector of the economy. They can put on extraordinary growth in the right conditions. But when the economy stumbles or a company falls behind the competition, you can expect deep market setbacks, especially when a stock is coming out of a period of over-valuation. That’s what happened to Intel, the world’s top maker of computer chips. Its earnings rose 15-fold between 1990 and 2000, but its stock rose 75-fold. At its 2000 peak, it was trading at 50 times earnings. Since then, its stock price has come down to much more attractive levels in relation to earnings, and earnings seem ready to set off on a new surge. INTEL CORP. $21 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) is the world’s largest maker of computer chips, with roughly 75% of the world market. Computer makers Dell and Hewlett-Packard account for about 35% of its total revenue....