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
MCDONALD’S CORP. $32 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) currently has 760 outlets in China, and aims to expand to 1,000 by 2008. It recently formed an alliance with Sinopec, China’s largest gas station operator, that will let it build drive-through restaurants at Sinopec’s gas stations. Finding suitable land for new restaurants is difficult in China, so this deal gives McDonald’s an easy way to expand, particularly in smaller cities and rural areas. More people in China can now afford cars, and they see fast food as an affordable luxury....
One-product companies can be great moneymakers when demand for their product is strong. But profits can evaporate when a competitor comes along with a slightly better alternative. For that matter, when a company depends too heavily on, say, Wal-Mart or any one buyer (or class of buyers, or geographical area, and so on), its bargaining position can quickly erode. In extreme cases, it may feel more like a sharecropper than an independent business. That’s one reason why we like Yum! Brands, a fast-food operator with five distinct banners. In addition, U.S.-based Yum is now the largest fast-food company in China. This was once a niche market. Today, however, China’s middle class of about 300 million people is roughly equal to the population of the United States. YUM! BRANDS INC. $49 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) operates around 32,000 fast food restaurants in over 100 countries. That’s more outlets than McDonald’s (see box on page 62), although McDonald’s generates higher annual sales....
Our Wall Street Stock Forecaster Hotline is a key part of our three-part service (including the monthly advisory and Portfolios supplement). The goal of our Hotline is to keep you up to date on our market outlook and changes in our advice. The Hotline is available for free to all our subscribers, by phone and email. We update it 44 or more times per year....
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MCCORMICK & CO., INC. $35 (New York symbol MKC) has acquired the 49% of European subsidiary Dessert Products International from its partner. The transaction will generate a gain of $0.20 a share. If you exclude one-time items, McCormick is likely to earn $1.65 a share in the fiscal year ending November 30, 2006, for a p/e of 21.2. Growth by acquisition has its risks. Hold. BUCKEYE PARTNERS L.P. $41 (New York symbol BPL) has raised its quarterly distribution for the eighth consecutive quarter, from $0.7375 a unit to $0.75. The new annual rate of $3.00 yields 7.3%. Best Buy. QUAKER CHEMICAL CORP. $18 (New York symbol KWR) needs oil to make its lubricants, which adds to its costs. But it is doing a good job passing along higher raw material costs to its customers, so its earnings should grow this year. Savings from a restructuring plan should also help it maintain its $0.86 dividend, which yields 4.8%. Buy....
DIEBOLD, INC. $43 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is a leading maker of automated teller machines (ATMs). It also makes electronic security systems for businesses and government agencies. Revenues grew from $1.8 billion in 2001 to $2.6 billion in 2005. Profits before unusual items rose from $1.96 a share (total $140.5 million) in 2001 to $2.54 a share ($184.0 million) in 2004. However, rising interest rates have hurt demand for loans, and many banks have put off buying new ATMs. Rising costs of raw materials like steel and copper have also squeezed Diebold’s profits. Consequently, profits in 2005 fell to $1.92 a share ($136.3 million)....
JONES APPAREL GROUP INC. $34 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) earned $0.22 a share (total $25.8 million) in the three months ended April 1, 2006, down 69.0% from $0.71 a share ($87.0 million) a year earlier. The company’s sale of its Polo jeans business generated a $45.1 million loss in the latest quarter. Excluding all unusual items, it would have earned $0.66 a share in the latest quarter. Sales fell 9.6%, to $1.22 billion from $1.35 billion. The company is making good progress with its latest restructuring, and should reach its goal of cutting $100 million out of annual costs by the end of 2007. In the meantime, it’s still looking into various ways to enhance stockholder value. These include putting the entire company up for sale. Jones Apparel Group is a hold....
CEDAR FAIR L.P. $26 (New York symbol FUN; Income Portfolio, Consumer sector; WSSF Rating: Average) has agreed to buy five Paramount amusement parks from CBS Corp. for $1.24 billion. This is a huge purchase for Cedar Fair, which earned $1.59 a unit (total $88.4 million) in 2005. Cedar Fair has just $4.5 million ($0.08 per unit) in cash, so it will have to borrow the money it needs. That will greatly increase its long-term debt of $504.6 million, which is already a high 1.3 times equity. The new parks do not overlap with Cedar Fair’s seven current parks, and should increase its annual revenues by 75%. The deal also gives it more parks that stay open year-round, as well as a park near Toronto, Canada, its first outside the United States. Savings from the merger should also give it more cash for distributions, but it will probably wait until it fully integrates the new parks before raising its current annual rate of $1.88 (7.2% yield)....
BARNES & NOBLE, INC. $39 (New York symbol BKS; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) is the largest bookseller in the United States, with 680 Barnes & Noble superstores, and 120 mall-based B. Dalton stores. It also sells books and other products over the Internet. In its first fiscal quarter ended April 29, 2006, profits rose to $0.14 a share from $0.13 a year earlier. Sales crept up to $1.11 billion from $1.10 billion. Same-store sales at Barnes & Noble stores fell 0.3%, while same-store sales at B. Dalton fell 1.8%. The first quarter is typically the slowest for Barnes & Noble, as publishers save their best titles for the busy summer and Christmas holiday buying seasons....
THE PROCTER & GAMBLE CO. $55 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) is the world’s leading maker of household and personal care products such as soap (Ivory), detergent (Tide), toothpaste (Crest), shampoo (Head & Shoulders) and snack foods (Pringles). Over 20 of its brands generate annual sales of at least $1 billion. In the past few years, Procter has used acquisitions to expand its market share and geographic reach. While that adds to its risk, the company has a good history of integrating new operations. Its biggest purchase so far was last October’s $51 billion all-stock acquisition of The Gillette Co., which makes razors, batteries (Duracell) and other consumer products....