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
CHEVRON CORP. $64 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; WSSF Rating: Above average) is one of the world’s largest integrated oil companies. It explores for and produces oil and natural gas in over 35 countries, and operates refineries that convert crude oil into gasoline and petrochemical products. It also owns over 26,000 retail gas stations. The company gets roughly 60% of its revenue from oil and natural gas sales. Refined products supply the other 40%. The United States accounts for half of Chevron’s revenue, and a third of its profit....
YUM! BRANDS INC. $53 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) is enjoying strong growth at its operations in China, now that fears of avian flu and SARS have faded. China accounts for 15% of Yum’s sales and profit, and the company estimates that same-store sales in the third quarter of 2006 at the China division will grow 25% (28% in U.S. dollars) over the year-earlier quarter. At its other international operations, Yum forecasts same-store sales growth of 9% (11% in U.S. dollars). This will help offset slowing growth at Yum’s U.S. operations, where third quarter same-store sales will likely fall 2%. But new menu items should help improve sales at Yum’s U.S. KFC and Taco Bell outlets in the fourth quarter....
HEWLETT-PACKARD CO. $35 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) is holding up well despite news that the company’s former chair used questionable surveillance techniques to identify a director who leaked certain information to the media. While embarrassing, we feel that the scandal will do little long-term damage to Hewlett’s business. Hewlett-Packard is a buy. NEWELL RUBBERMAID INC. $29 (New York symbol NWL; Income Portfolio, Consumer sector; WSSF Rating: Average) has agreed to sell its Little Tykes division, which makes children’s toys and furniture. The sale should generate a gain of between $15 million and $25 million; Newell earned $149.6 million or $0.54 a share before unusual items in its most recent quarter. The sale is part of Newell’s plan to sell less-profitable products, and focus on fastergrowing products such as office supplies....
WAL-MART STORES INC. $50 (New York symbol WMT; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) plans to work with its over 60,000 suppliers to reduce overall packaging by 5%. The company feels that less packaging should please environmentalists, and save it $3.4 billion over five years, starting in 2008. That’s equal to 60% of the $5.65 billion or $1.35 a share that it earned in the six months ended July 31, 2006. The company also plans to cut the price it charges for generic brand prescription drugs by up to 90%. It hopes this will help attract more customers to its stores, and improve its public image with anti-poverty activists....
BUCKEYE PARTNERS L.P. $43 (New York symbol BPL; Income Portfolio, Utilities sector; WSSF Rating: Average) transports gasoline and other refined petroleum products through a 5,350-mile pipeline network in 16 states, mainly in the Northeast and Midwest. It also operates pipelines under contract for major oil companies, and owns oil and chemical storage terminals. Buckeye has expanded aggressively in the past two years, mostly through acquisitions. While that adds to its risk, these new assets are profitable and broadened its geographic reach. The extra cash flow has also let Buckeye increase its distributions for nine consecutive quarters. The current rate of $3.05 a unit yields 7.1%. In the three months ended June 30, 2006, revenue grew 9.4%, to $111.5 million from $101.9 million a year earlier, mostly due to acquisitions and higher pipeline rates. However, higher costs for electricity and maintenance cut earnings in the quarter to $24.2 million from $24.4 million....
QUAKER CHEMICAL CORP. $20 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) makes lubricants and specialty chemicals that protect industrial machinery from rust and other forms of corrosion. Major customers include steel producers, automotive companies and appliance makers. The company needs crude oil to make its products. Although it passes along most of its higher costs to its customers, the steady rise in oil prices over the past few months has squeezed its profit margins. Quaker hedges some of its oil needs, but these contracts typically last for less than one year. Quaker is now starting to see some of the benefits from its 2005 restructuring plan. In the second quarter of 2006, it earned $0.30 a share (total $3.0 million), up 66.7% from $0.18 a share ($1.8 million) a year earlier. Revenue grew 10.9%, to $118.7 million from $107.0 million....
These three well-managed industrial companies have come under pressure in the past few months, as rising costs for fuel, metals, plastics and labor have slowed their earnings growth. But they own some of the best-known brands in their fields, and they are all doing a good job cutting costs. Some like Stanley Works are taking advantage of the recent weakness in the manufacturing sector to make acquisitions. We like the long-term prospects of all three, but see only one as a buy right now....
THE BOEING CO. $79 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) has won a contract to build a “virtual fence” along the Mexican border in Arizona, using cameras, motion sensors and unmanned planes. The three-year contract is worth just $67 million, tiny in relation to Boeing’s annual revenue of $70 billion. But it could lead to more border-security business, which is a growing field around the world. Boeing’s stock climbed to $90 in May, due to production problems at rival Airbus and strong demand for its new 787 Dreamliner plane. It now trades at 33.6 times the $2.35 a share it will probably earn this year. That’s high for a company so closely linked to the volatile airline industry....
CINTAS CORP. $41 (Nasdaq symbol CTAS; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) earned $85.0 million in its first fiscal quarter ended August 31, 2006, up 8.4% from $78.4 million a year earlier. The company is an aggressive buyer of its own stock. Consequently, per-share earnings grew 15.2%, to $0.53 from $0.46, due partly to fewer shares outstanding. Revenue rose 11.0%, to $914.2 million from $823.5 million. Part of the company’s growth has come from acquisitions. These are mostly smaller companies that expand the number of products and services that Cintas can offer to its uniform rental customers....
FREESCALE SEMICONDUCTOR INC. (New York symbols FSL $38 and FSL.B $38; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Extra risk) was formerly the chipmaking subsidiary of Motorola Inc. Motorola did a partial public offering of Freescale in 2004. In December of that year, Motorola handed out its remaining Freescale to its own investors as a special dividend or spinoff. The stock started out trading around $17 ($18 for the Class B multiple voting shares) at the time of the spin-off. Freescale has now accepted a $40-a-share all-cash takeover offer from a private investment group. The agreement lets Freescale entertain competing bids until November 4, 2006, but we don’t expect to see a higher bid. Investors should plan to tender to get the full value of the takeover....