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
BARNES & NOBLE INC. $34 (New York symbol BKS; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) fell 5% after an investor sued it, alleging the company improperly issued stock options to its top executives. The SEC is now conducting an informal probe into Barnes & Noble’s stock options policy and procedures. We’ll have more to say as information becomes available. For now, we see the stock as a buy. INTEL CORP. $18 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) plans to invest $600 million in Clearwire Corp., which specializes in high-speed wireless data networks. The price is equal to 68% of the $885 million or $0.15 a share that Intel earned in the second quarter of 2006....
BRIGGS & STRATTON CORP. $25 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) now expects that it earned around $1.95 a share in its fiscal year ended June 30, 2006, down 13% from its fiscal 2005 earnings of $2.25 a share. The company blamed the lower earnings on rainy weather during the late spring and early summer, which hurt demand for lawnmowers and other garden equipment. Rising fuel and metal costs have also hurt profits. Briggs is now cutting production to keep its inventory levels down. The stock has moved down from $40 at the start of 2006, and now trades at 12.8 times its fiscal 2006 profit forecast. But demand for Briggs’ power generators is steady (generators and other electrical products account for 40% of Briggs’ sales), and could jump if this year’s hurricane season is as severe as last year’s. Briggs’ $0.88 dividend seems safe, and yields 3.5%....
LA-Z-BOY INC. $13 (New York symbol LZB; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is the world’s largest maker of reclining chairs. It also makes sofas, wall units and tables. Sales fell from $2.15 billion in 2002 (fiscal years end April 30) to $2.0 billion in 2004, due to the sale of its baby furniture division and growing competition from Asian furniture makers. Sales improved to $2.05 billion in 2005, but slipped to $1.9 billion in 2006. The company responded to the slower sales with a major restructuring plan. It replaced most of its domestic casegoods (wood furniture) operations in North America with cheaper imports. It also streamlined its upholstery business....
AMERICAN EXPRESS CO. $52 (New York symbol AXP; Conservative Growth Portfolio, Finance sector; WSSF Rating: Average) is a major financial services company, with offices in over 130 countries. In September 2005, the company handed out all of its shares in subsidiary Ameriprise Financial Inc. (see page 73) to its own investors as a tax-deferred dividend. The spin-off let AmEx focus on its credit card business (90% of revenue), and its travel services operations (10% of revenue). The company is starting to realize some of the benefits of a recent Supreme Court ruling that that made American Express cards available through more banks. A new alliance with affinity credit card issuer MBNA (now a subsidiary of Bank of America) has also expanded the number of cards outstanding, and spending per card....
VERIZON COMMUNICATIONS INC. $33 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; WSSF Rating: Average) is investing heavily to expand its wireless networks, and replace traditional copper phone lines with high-speed fiber optic cables. These upgrades should help it attract new customers, and offer new services such as TV programs and games. As part of this strategy, Verizon will probably either sell or spin off its telephone directories business by the end of this year. This business accounts for about 5% of its total revenue, and is facing growing competition from online search services. A straight sale would give Verizon more cash to upgrade its networks. However, it would have to pay tax on the proceeds....
SYSCO CORP. $29 (New York symbol SYY; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Average) is building new distribution centers and hiring more salespeople as part of a major expansion plan. It also just agreed to pay an undisclosed sum for privately held Bunn Capitol Co., which distributes fresh, frozen and packaged goods to restaurants and private clubs in Illinois. These outlays, along with higher fuel, electricity, pension and stock option expenses, likely cut Sysco’s earnings in its fiscal year ended June 30, 2006, to $1.36 a share from $1.47 in fiscal 2005. The stock more than tripled in the late 1990s, and peaked at $41 in 2004. But it has stayed in a narrow range for the past two years, and now trades at 21.3 times its forecasted fiscal 2006 earnings....
Uncertainty over interest rates, oil prices and the Mideast situation has hurt world equity markets in the past few months. However, we feel that this is a temporary setback, and not the start of a protracted bear market. These three investment firms earn much of their income based on the value of the securities they manage. Consequently, the recent downturn has hurt their short-term earnings growth and stock prices. Our view is that their earnings will probably rebound with the markets, particularly as we get closer to the two-year period before the next Presidential election. In the meantime, we see them as worthwhile holds....
As competition in most industries increases, many companies plan to spend more money developing new products in the next few years. These costs hurt their earnings, but could lead to higher sales for years to come. Most companies also plan to spend more advertising and marketing their products. If done right, a successful advertising campaign can have just as big an impact on sales as a new product. However, traditional forms of advertising like TV commercials and billboards are losing their effectiveness as more people use the Internet for information and entertainment. Consequently, advertisers are turning to direct marketing firms to help them zero in on desired groups....
If the market is going to run into serious trouble, it often does so in the first half of a four-year Presidential term. Our last Presidential election was in November 2004. That made 2005 and 2006 the years when investors needed to watch out. Several times since the fall of 2004, after a market downturn, investors wondered if we had entered a bear market — a falling trend that lasts one to three years and knocks 20% or more off the market indexes. Many investors are especially wary of the next bear market, since the last one was so lengthy and deep. That bear market began in mid-2000 and ended in the winter of 2002/2003. It was extremely costly for investors who made the common mistake of loading up on Internet and tech stocks....
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