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 BOEING CO. $76 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) plans to wind down its money-losing Connexion division, which provides high-speed Internet access to airplane and ship passengers. When Boeing launched Connexion in April 2000, it hoped to eventually install the equipment on 5,000 aircraft. After 9/11, interest in Connexion fell as weak passenger volumes forced airlines to cut costs. Right now, fewer than 150 planes use the service. The shutdown will cut Boeing’s 2006 profit by $0.26 a share, but add $0.15 to its 2007 earnings. Boeing’s stock has tripled since 9/11, as the travel industry rebounded. Airlines will soon have to replace aging aircraft, and production delays at Boeing’s chief rival Airbus have also helped drive the stock higher. Boeing now trades at 29.6 times its forecast earnings for 2006 of $2.57 a share. That’s expensive for a company closely tied to a cyclical industry like airlines....
In the past few years, these four industrial companies have invested heavily in research to transform their traditional products (telephones, copiers and cash registers) to take advantage of new digital technologies. While this spending has cut into their earnings, it has helped them expand sales to their current customers, and enter new markets. We have a high opinion of all four, particularly since their products and services help cut their customers’ costs. But only three are buys right now. XEROX CORP. $15 (New York symbol XRX; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is one of the world’s leading makers of printers, copiers and document publishing equipment. Overseas markets account for about half of its sales and profits....
INTERNATIONAL BUSINESS MACHINES CORP. $79 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) has agreed to buy FileNet Corp., which makes software that help companies manage their web pages, email and other electronic documents. Demand for this type of software is rising fast as companies shift from paper-based to computer-based transactions. To put the $1.6 billion purchase price in context, IBM earned $1.30 a share (total $2.0 billion) in the second quarter of 2006. That’s 14.0% more than the $1.14 a share ($1.85 billion) that it earned from continuing operations a year earlier. IBM has aggressively expanded its software business in the past few years, mostly through acquisitions of niche firms like FileNet. That’s because software earns higher profit margins for IBM than its other businesses. Although software accounts for just 20% of IBM’s revenues, it contributes a third of its profit. A bigger software business also enhances IBM’s computer services division, which supplies roughly half of its revenue and 35% of its profit....
Deregulation and the Internet have made it easier for cable companies and start-up firms to offer basic telephone service, usually for a fraction of what traditional telephone utilities charge. This new wave of competition has forced many telephone companies to spend huge sums upgrading their networks to handle a variety of new services, which they hope will help them hang on to their current customers and attract new ones. But many phone companies lack the cash flow to fund these costs. They also risk alienating their traditional stockholders, many of whom rely on their dividends for income....
Our focus on high-quality stocks has produced major gains for our readers in the past few years. Our choices have done well in the market, but they have also attracted more than our share of takeover bids. That’s because the high-quality stocks we recommend generally offer a combination of high potential and low risk. That’s the main goal of many corporate takeover specialists. Recently, two of our long-time recommendations have agreed to friendly takeover bids. Both deals should wrap up by the end of 2006....
Searchable versions of your newsletter are not yet available for the dates you’ve selected. In the meantime, we have posted complete issues, in PDF format, for your convenience. Best regards, TSI Network
Searchable versions of your newsletter are not yet available for the dates you’ve selected. In the meantime, we have posted complete issues, in PDF format, for your convenience. Best regards, TSI Network
NVIDIA CORP. $20 should gain from Advanced Micro Devices’ merger with Nvidia’s chief rival, ATI Technologies. AMD feels that integrating ATI’s video chips with its processors will help it compete with industry leader Intel. However, most video card buyers prefer to install this equipment separately. In addition, Intel will now replace the chips it now buys from ATI with Nvidia products. We now see Nvidia as a buy. WASHINGTON MUTUAL INC. $46 plans to sell some of its mortgage servicing business, which mails statements to borrowers and collects payments. That should let it focus on more profitable businesses, like credit cards, and cut its reliance on the mortgage industry. Best Buy. MOLSON COORS BREWING CO. $71 has gained 10% in the past two months. Recent heat waves in much of the United States should spur strong demand for beer. The higher sales should more than offset rising aluminum can costs. Buy.
GENERAL MILLS, INC. $52 (New York symbol GIS; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) is one of the largest food processing companies in the United States. The company owns many of the industry’s best known brands, including Cheerios and Wheaties (ready-to-eat cereals), Pillsbury and Betty Crocker (baking products), Green Giant (vegetables), Progresso (soups) and Yoplait (yogurt).
High reliance on Wal-Mart
The U.S. supplies around 85% of the company’s revenue and profit. Wal-Mart accounts for 20% of its U.S. sales, which adds to its risk. Wal-Mart recently cut the number of different brands it carries as part of a cost cutting plan, but this should have little effect on big suppliers like General Mills. Revenues rose 32.9%, from $7.9 billion in 2002 (fiscal years end May 31) to $10.5 billion in 2003, after the company merged with rival food company C.A. Pillsbury....
MERCURY INTERACTIVE CORP. $50 (Pink Sheets Over-the- Counter market symbol MERQ; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Extra risk) dropped from $40 in July 2005 to around $23 in November 2005, after errors in the way it accounted for stock options forced it to restate its results back to 1992. After the huge drop, we advised aggressive investors to hold the stock. We felt Mercury’s unique web site testing software could attract takeover offers from larger software companies, once it straightened out its accounting problems. HEWLETT-PACKARD CO. $32 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) has just agreed to buy Mercury — for $52.00 a share. The total cost of $4.5 billion is 2.8 times the $1.6 billion or $0.54 a share that Hewlett earned before one-time items in its second fiscal quarter ended April 30, 2006....