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
CENTERRA GOLD $14.50 (Toronto symbol CG; SI Rating: Speculative) (416-204-1953; www.centerragold.com; Shares outstanding: 216.2 million; Market cap: $3.1 billion) owns 100% of the large Kumtor gold mine in Central Asia and 95% of the Boroo gold mine in Mongolia. Cameco Corp. owns 53% of Centerra. The two mines have proven reserves of over 6.2 million ounces of gold. Centerra’s share of production from the two mines is forecast at around 700,000 ounces next year. That’s down from an original forecast of 773,000 ounces because the pit wall moved unexpectedly this year at the Kumtor mine. The movement involved a significant portion of the northeast wall of the open-pit mine. Production will be affected well into 2007. Centerra’s main exploration-stage prospect is the 62%-owned REN project in Nevada. Its partner there is Barrick Gold, which operates mines nearby. Its other prospect is the 100%-held Gatsuurt property in Mongolia....
Two more of our buys — Swift Transportation and Agere Systems — have attracted takeover bids, raising our takeovers to a total of 10 for the year. (Our other 2006 takeovers were Mercury Interactive, ACE Cash Express, Russell Corp., Sico Inc., Vincor International, VFC, Dofasco and Geac.) Investors often ask how we manage to recommend so many stocks that get taken over at a big profit. One key is that we aim to recommend stocks with hidden assets — assets that attract less investor attention than they deserve. That gives buyers a bargain, and that attracts takeover bids. Some assets stay hidden indefinitely. But stocks we recommend have added pluses such as long-term growth prospects or a reasonable ratio of price to current earnings. That way you get the best of all investment odds: heads-you-win, tails-you-break- even....
DOMINO’S PIZZA $27.30 (New York symbol DPZ; SI Rating: Average)(734-930-3030; www.dominos.com; Shares outstanding: 62.3 million; Market cap: $1.7 billion) is the world leader in pizza delivery. Through its primarily franchised system, Domino’s operates a network of 8,328 franchised and company-owned stores in the United States and in more than 50 countries. Domino’s first outlet opened in 1960, when brothers Thomas and James Monaghan purchased a small pizza store in Ypsilanti, Michigan. In 1998, an investor group acquired a 93% interest in the company for $1.1 billion. In 2004, Domino’s sold shares to the public at $14 each. In the three months ended September 10, 2006, Domino’s revenues fell 3.2%, to $326.7 million from $337.6 million. Like most fast-food providers this year, domestic same-store sales were hurt by lighter consumer traffic arising from higher gasoline prices and rising mortgage rates cutting disposable incomes. As well, sales were higher last year due to heavier promotions. The lower domestic sales were partly offset by higher international same-store sales, which grew 3%....
INTERNATIONAL BUSINESS MACHINES CORP. $94 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) is the world’s largest computer company. It specializes in large, mainframe computers for corporations and governments. It’s also a leading maker of software. Revenue fell from $85.9 billion in 2001 to $81.2 billion in 2002 as the economy slowed and demand for new computers and services fell. Revenue grew to $89.1 billion in 2003, and to $96.3 billion in 2004, but fell to $91.1 billion in 2005 after the company sold its personal computer operations for $1.75 billion. Profits fell from $4.35 a share (total $7.7 billion) in 2001 to $3.95 a share ($6.9 billion) in 2002, but rose to $5.05 a share ($8.6 billion) in 2004. Total profit in 2005 slipped to $8.5 billion. But per-share earnings rose to $5.22 due to fewer shares outstanding....
FEDERATED DEPARTMENT STORES INC. $43 (New York symbol FD; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) has agreed to sell its 780 bridal and formalwear stores for $850 million. The company acquired these stores as part of its merger with May Department Stores, but would rather focus on its core Macy’s and Bloomingdale’s department store chains. In its third fiscal quarter ended October 28, 2006, Federated earned $0.03 a share (total $20 million) from continuing operations, down sharply from $0.87 a share ($424 million) a year earlier. If you exclude merger costs and other one-time items, per-share earnings grew 25.0%, to $0.20 from $0.16. Sales rose 5.4%, to $5.9 billion from $5.6 billion, while same-store sales rose 5.9%. Federated will probably use the cash to pay down its long-term debt of $8.0 billion (0.6 times equity), or buy back stock. In the first three quarters of its current fiscal year, Federated repurchased $1.1 billion worth of its stock....
CEDAR FAIR L.P. $28 earned $2.42 a unit in the third quarter of 2006, down 22.2% from $3.11 a year earlier, mainly due to a one-time gain in the year-earlier quarter. Thanks to its recent purchase of five amusement parks from CBS Corp., revenue jumped 71.0%, to $542.1 million from $317.0 million. Best Buy. BUCKEYE PARTNERS L.P. $45 raised its distribution for the tenth consecutive quarter, from $0.7625 a unit to $0.775. The new annual rate of $3.10 yields 6.9%. Best Buy. AMEREN CORP. $54 earned $1.42 a share in the third quarter, up 6.8% from $1.33 a year earlier. The company estimates that lost revenue and costs to repair damage caused by severe storms in Illinois and Missouri cut its earnings in the latest quarter by $0.10 a share. Cooler summer weather also hurt electricity demand. But these setbacks should not hurt Ameren’s $2.54 dividend (4.7% yield). Buy....
WINDSTREAM CORP. $14 (New York symbol WIN; Income Portfolio, Utilities sector; WSSF Rating: Average) earned $0.43 a share in the three months ended September 30, 2006, up 59.3% from $0.27 a year earlier. The company took its present form on July 17, 2006 through the merger of Alltel Corp.'s traditional phone business with Valor Communications Group Ltd. On a pro forma basis and excluding one-time items, per-share profits were unchanged at $0.22. Pro forma revenue fell slightly, to $794.8 million from $797.0 million. Access lines in service fell 4.2% in the latest quarter. But Windstream is doing a good job getting its Internet users to upgrade to high-speed service. That should help it offset these lost customers, and let it maintain its $1.00 dividend (7.1% yield). Windstream is a buy....
LIMITED BRANDS INC. $31 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) has agreed to pay $628 million for La Senza Corp., which operates 318 women’s lingerie stores in Canada. Licensees operate 327 La Senza stores in 34 other countries. The company feels that its long experience running the Victoria’s Secret chain will help it expand La Senza’s profits. In the meantime, thanks to strong growth at the Victoria’s Secret and Bath & Body Works chains, Limited Brands earned to $0.06 a share (total $23.5 million) in its third fiscal quarter ended October 28, 2006. The company broke even in the year-earlier quarter. Sales rose 10.5%, to $2.1 billion from $1.9 billion, while same-store sales grew 10%....
MOLSON COORS BREWING CO. $70 (New York symbol TAP; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) took its present form in February 2005 through the merger of Adolph Coors Co. and Molson Inc., a Canadian brewer. It is now the world’s fifth-largest brewer by volume. Major brands include Molson Canadian, Coors Light and Carling. The two companies merged because they felt they were too small to compete effectively with global brewers that enjoy large economies of scale. The merged company’s main goal was to cut its annual costs by $175 million in the first three years. Molson Coors now feels it can save a further $75 million by the end of 2008. That would give it $250 million in annual savings. Thanks to these savings, Molson Coors earned $1.56 a share (total $135.8 million) in the third quarter ended September 24, 2006, up 23.8% from $1.26 a share ($108.2 million) a year earlier. These figures included special charges of $28.5 million in the most recent quarter, and $33.5 million in the year-earlier quarter. Sales grew 3.3%, to $1.58 billion from $1.53 billion....
BAXTER INTERNATIONAL INC. $44 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is a leading maker of medical equipment, such as intravenous drug delivery systems, blood collection devices and dialysis equipment. Baxter also makes vaccines for various diseases including influenza and smallpox. This is just a small part of Baxter’s business, but it has huge potential. Baxter’s expertise is helping it win more contracts to make vaccines for the avian (or bird) flu virus....