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
The Internet and other communications advances get the word out on new technology almost instantaneously. The best new products build up huge sales overnight and the products they replace see their markets evaporate just as quick. Many investors try to deal with this situation by chasing after every available scrap of information or opinion. But information changes continually, and opinions are often wrong. You’re better off to confine your tech investments to stocks that can build what you might call a captive or at least loyal market. A good example is Beckman Coulter, one of our long time favorites, which has more than doubled for us in the past five years. Every time Beckman sells a new machine, it acquires a new customer for its supplies and maintenance services....
AVAYA INC. $13 (New York symbol AV; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is shifting its focus away from traditional telephone systems to new equipment that uses the Internet to send calls and other data. However, intense competition is driving down prices and hurting Avaya’s profit margins. It now aims to cut costs with a new restructuring plan that will cost it $137 million over the next few months. If you disregard unusual items, Avaya earned $0.17 a share (total $80 million) in its fourth fiscal quarter ended September 30, 2006, down 15.0% from $0.20 a share ($95 million) a year earlier. Sales rose 4.6%, to $1.36 billion from $1.3 billion. The company is debt free and has $899 million (about $2.00 a share) in cash, so it can comfortably afford these charges. Lower operating costs should free up more cash for research; Avaya currently spends 8% of its sales of $10.98 a share on research....
The apparel industry is typically more risky than other segments of the Consumer Goods & Services sector, such as fast food outlets and beverage makers. It takes months to design and make clothes, so it’s hard to respond to changing fashion trends. That’s why it pays to stick with well-established companies, like these three, which have built up a portfolio of high-quality brand names. These brands provide steady income, even during poor economic conditions. Their situations vary, but all three are buys....
ARCHER DANIELS MIDLAND CO. $39 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) is currently building new plants in the United States and Brazil to meet growing demand for alternative fuels, particularly biodiesel fuel made from soybeans. Right now, only about 3% of vehicles in the United States use diesel fuel. But that figure will probably grow to 10% by 2015, due to the environmental advantages of new diesel engines. Biodiesel contains almost no sulfur, so it already meets tougher new environmental regulations for diesel fuel. ADM got as high as $47 in May, but moved down as rising corn prices and falling gasoline prices cut ethanol demand. New ethanol plants under construction by ADM and other companies could keep prices down once production begins. However, ethanol and other fuels account for less than 10% of ADM’s profit. In the meantime, its core agricultural businesses will benefit from higher corn prices....
ARKANSAS BEST CORP. $41 (Nasdaq symbol ABFS; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) specializes in less-than-truckload (LTL) shipping, which combines freight from multiple customers into a single vehicle. LTL services supply 90% of its revenue. In the three months ended September 30, 2006, earnings from continuing operations fell 21.5%, to $1.24 a share from $1.58 a year earlier. If you disregard unusual items, per-share profits grew 5.0%, to $1.26 from $1.20. Revenue rose 9.5%, to $507.3 million from $463.3 million. A growing part of the company’s business is coming from short-haul shipments, particularly along the eastern seaboard. That’s good news, since the company earns higher profits from same-day or overnight delivery than from long-haul services....
WACHOVIA CORP. $56 (New York symbol WB; Conservative Growth Portfolio, Finance sector; WSSF Rating: Average) has used acquisitions to grow in the past few years, including the 2001 merger of First Union Corp. and Wachovia Corp. The company’s recent purchase of Golden West Financial Corp. increased its assets by $125 billion. It is now the fourth-largest bank in the United States, with assets of $700 billion. Wachovia offers a full range of banking services through roughly 3,400 branches in 21 states. It also provides brokerage and wealth management services....
BANK OF AMERICA CORP. $54 (New York symbol BAC; Income Portfolio, Finance sector; WSSF Rating: Above average) hopes to give customers a reason to stick with it by giving them free stock trades. This has a big cost advantage over old-fashioned giveaway items like clocks and toasters: the marginal cost of those extra trades verges on zero. The bank will let customers make up to 30 commission-free trades a month if they maintain at least $25,000 in savings or other accounts. It hopes this will spur customers to keep their cash in regular deposit accounts, instead of shifting it to higher-yielding investments such as CD’s or accounts at rival banks. Meanwhile, the company is gaining from its acquisition of credit card specialist MBNA Corp. In the third quarter of 2006, its income rose 42.1%, but per-share earnings grew just 24.2%, to $1.18 from $0.95 a year earlier, due to more shares outstanding. Revenue grew 31.7%, because it acquired MBNA at the start of 2006. Had it owned MBNA for all of 2005, revenue would have still grown 10%....
LA-Z-BOY INC. $13 (New York symbol LZB; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) warned that it will earn between $0.01 a share and $0.04 a share in its second fiscal quarter ending October 28, 2006, down from an earlier estimate of $0.13. Most of the drop is due to weaker-than-expected sales at its retail outlets, as the slowdown in the housing market cut demand for new furniture. Profits at the company’s wholesale business are improving, but high fixed costs combined with slower sales have hurt profit margins at the retail division. We think the company will keep paying its $0.44 dividend, which yields 3.4%. La-Z-Boy is a buy for long-term gains....
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ALCOA INC. $28 has agreed to sell its home exteriors business, which makes a variety of do-it-yourself residential improvement products such as siding, windows and patio doors. The sale price of $300 million is equal to 40% of the $744 million or $0.85 a share it earned in the second quarter of 2006. The sale is part of Alcoa’s plan to focus on more profitable segments of the construction market, such as industrial buildings. Buy. FORD MOTOR COMPANY $8 has suspended its $0.05 quarterly dividend, as it tries to save money in an increasingly competitive automotive industry. The company may also try to merge with another carmaker to cut costs. Hold. AMERIPRISE FINANCIAL INC. $47 has launched its own federal saving bank. The company hopes to expand revenue by offering its wealth management clients regular banking services such as mortgages and deposit accounts. But demand for financial planning services could fall if the economy slows down. Hold.