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
WEYERHAEUSER CORP. $60 has raised its quarterly dividend for the second time since April 2005, from $0.50 a share to $0.60. It now yields 4.0%. Earnings have improved and the company is still the world’s biggest holder of softwood timberlands. Buy. VERIZON COMMUNICATIONS INC. $33 plans to discontinue its Airfone service, which lets airline passengers make phone calls from special units built into the back of seats. Verizon prefers to invest in its ground-based wireless networks, rather than upgrade its aging Airfones to compete with new services that offer air travellers high-speed Internet access. Buy. PEPSICO INC. $59 plans to build a new facility in Oklahoma that will specialize in sport drinks, particularly its top-selling Gatorade brand, and flavored waters. Demand for these products is growing strongly, and this plant will help expand PepsiCo’s sales in several southeastern states which are major markets for it. We now see PepsiCo as a buy for long-term gains.
TEXAS INSTRUMENTS, INC. $29 (New York symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is one of the world’s top suppliers of chips for electronic devices such as mobile phones and DVD players. This business accounts for over 95% of its revenue. The rest comes from handheld calculators. It also makes money licensing its technology to other manufacturers. The company’s revenue grew steadily, from $8.2 billion in 2001 to $13.4 billion in 2005, due to growing demand for mobile phones and high-speed computer modems.
Restructuring fueled huge profit gains
Income before unusual items shot up from $0.12 a share ($209.0 million) in 2001 to $1.34 a share ($2.2 billion) in 2005, thanks to savings from a major restructuring plan....
ACE CASH EXPRESS INC. $29 (Nasdaq symbol AACE; Aggressive Growth Portfolio, Finance sector; WSSF Rating: Speculative) has accepted a $30.00-a-share cash takeover offer from a private investment group. Insiders control 16% of the company’s stock, so the sale of the company at a minimum $30 is all but certain, assuming it wins needed approval of ACE’s stockholders and financial industry regulators. However, the takeover agreement gives ACE 30 days to solicit a better acquisition proposal. A higher bid is possible but not especially likely. The deal will probably close in the fourth quarter of 2006. We first recommended ACE at $18 in our January 2000 issue. At $30, that works out to a 66.7% gain....
ARKANSAS BEST CORP. $47 (Nasdaq symbol ABFS; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) has sold its Clipper Express subsidiary, which ships goods using trucks and trains. The sale will generate a gain of roughly $0.12 a share, or 27% of the $0.44 a share it earned before one-time items in the first quarter of 2006. It will also let the company focus on its core less-than-truckload operations. Arkansas Best is a buy. NORDSTROM INC. $35 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) sells mainly upscale apparel and shoes. Most of its customers earn above-average incomes, which leaves it less vulnerable to having its profit margins crimped by rising fuel costs. The company’s same-store sales in May 2006 grew 7.8%. The stock has moved down lately, and is now reasonably priced in relation to its prospects....
WINNEBAGO INDUSTRIES INC. $29 (New York symbol WGO; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) earned $0.40 a share in its third fiscal quarter ended May 27, 2006, down 23.1% from $0.52 a year earlier. The company recently began expensing stock options, and these costs cut its income in the most recent quarter by $0.02 a share. Revenue fell 13.6%, to $220.3 million from $255.0 million, as high fuel prices hurt motor home demand. The company is also selling more lower-priced models, which also cuts revenue. The stock has moved down lately, and now trades at 19.9 times the $1.46 a share it should earn in fiscal 2006. The $0.40 dividend yields 1.4%....
FEDEX CORP. $113 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) provides door-to-door delivery of packages and documents through its own fleet of roughly 700 aircraft and 45,000 ground vehicles. The United States accounts for about twothirds of its revenue. The company’s strong reputation for quick and reliable deliveries has helped it pass along higher fuel costs to its customers, without hurting volumes. Thanks to a 4% rise in overall volumes, FedEx earned $1.82 a share (total $568 million) in its fourth fiscal quarter ended May 31, 2006, up 24.7% from $1.46 a share ($448 million) a year earlier. The company is also handling more overnight shipments, which generate higher profits for it than regular deliveries. Revenue rose 10.4%, to $8.5 billion from $7.7 billion....
PHILIPS ELECTRONICS N.V. $29 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) plans to spin off its chip division as a separate company by the end of 2006. Philips will probably sell stock to the public through an initial offering. Philips will retain a minority interest in the new company, but will likely sell its shares over the next few years. The chip division supplies about 15% of Philips’ total revenue. But it’s less profitable than its core medical systems, appliances and lighting businesses. It also requires large investments in new equipment to stay competitive....
H.J. HEINZ CO. $40 (New York symbol HNZ; Income Portfolio, Consumer sector; WSSF Rating: Above average) aims to save $355 million over the next two years, mainly through plant closings. It also plans to cut the allowances it grants to retailers in exchange for premium shelf space. That should save it $145 million over two years. To put these figures in context, Heinz earned $2.10 a share (total $717.7 million) before unusual items in the fiscal year ended May 3, 2006. That’s down 5.0% from $2.21 a share ($779.8 million) a year earlier. Sales grew 6.2%, to $8.6 billion from $8.1 billion. If you exclude the impact of changes in foreign-exchange rates, Heinz’s sales would have grown 8.2%....
Demand for financial and business information is ballooning. A great deal of this information is available for free on the Internet, but users have doubts about its accuracy. So they are willing to pay for data they can trust from reputable sources, such as these four top providers of specialized business information. Investors see a lot of value and long-term growth potential in these companies. That helps explain why they often trade at above-average p/e ratios (the S&P 500’s p/e is currently 17.4).We see only two of these stocks as buys right now. DOW JONES & CO. $34 (New York symbol DJ; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) publishes The Wall Street Journal and Barron’s magazine. It also owns several smaller publications, and provides newswire and specialized information services....
FAIR ISAAC CORP. $36 (New York symbol FIC; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) aims to spur its profit growth with a new restructuring plan. It will cut roughly 8% of its workforce, which will cost it $5.7 million for severance and other items. But the plan should save Fair Isaac $24 million (pre-tax) a year. To put that in context, the company earned $0.40 a share (total $27.0 million) in its second fiscal quarter ended March 31, 2006. The latest per-share earnings figure included a $0.02 writedown, and $0.10 in employee stock option expenses....