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
Today many investors take it for granted that rapid industrialization in China and India has spurred the sharp increases in energy and metal prices of the past few years. They overlook the fact that hedge funds have poured investor money into the commodity markets these past few years — directly, and by investing in junior resource companies. As hedge funds and other traders try to sell their holdings, commodities could become even more volatile than usual. Prices could slump deeply over the next six months to a year. But rapid growth in China, India and elsewhere ensures that commodity prices will fluctuate in a much higher range in the next 10 years than in the last 10. That’s why we recommend that you hold some Resources issues in your portfolio. But it pays to stick with well-established companies, and limit your exposure to 25% or less of your overall portfolio. That way, you avoid the heavier risk of more aggressive stocks, but you still profit from growth in worldwide demand....
HEWLETT-PACKARD CO. $32 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector, WSSF Rating: Above average) is starting to realize some of the benefits from its acquisition of Compaq Computer in May 2002. Compaq greatly increased Hewlett’s exposure to the increasingly competitive personal computer market. Its main rival, Dell Inc., which sells its products directly to consumers over the phone or Internet, also has more flexibility than Hewlett to cut prices. However, Hewlett’s strategy of partnering with major retailers like Best Buy helps it appeal to first-time buyers who are reluctant to buy over the phone or online. Hewlett is also doing a better job marketing its computers, showing users how easy it is to play movies and music instead of focusing on chip speed and other technical data. This plan also gives Hewlett an edge in overseas markets, where phone and Internet service is less reliable....
HONDA MOTOR COMPANY ADRs $33 (New York symbol HMC; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) plans to spend $1.2 billion as part of its strategy to expand annual vehicle sales by a third by 2010. Most of the money will go to two new assembly plants, one in Japan and one in the United States. Honda also plans to build a new engine plant in Canada. The North American plants will help Honda meet its goal of producing at least 80% of its North American sales at domestic facilities. That cuts its currency risk. To put this investment in perspective, Honda earned $1.02 per ADR (total $1.9 billion) in its fourth fiscal quarter ended March 31, 2006, up sharply from $0.47 per ADR ($876 million) a year earlier. However, the latest quarterly earnings included a $1.2 billion pre-tax gain from the transfer of most of its employee pension fund liabilities and certain plan assets to the Japanese government. Sales grew 10.6%, to $24.1 billion from $21.8 billion....
After a market rise like the one we’ve had in the past few years, investors often wonder, “When should I sell?” The answer depends as much on the stocks you hold as on the market outlook. Some stocks are made to be traded. That includes many of the more speculative stocks we analyze in Stock Pickers Digest, our affiliated publication which focuses on riskier, more aggressive investments than we do here in Wall Street Stock Forecaster. United Technologies (see below) has more than doubled for us since we first recommended buying it in April 2000 (we called it a “dull industrial with exciting prospects”). That alone may spur some investors to sell. But United has many of the earmarks of a well-established company with great long-term potential — one that is worth hanging on to through a market setback....
The market downturn that began last month looks like a correction, rather than a bear market. It’s a crucial difference. A correction may last three to six months and shave 5% to 15% off the market. A bear market can last for years, and the toll on the market can run much deeper. This downturn has already knocked 6% or so off the Dow and S&P 500. So, though it’s doubtful that prices have already hit bottom, that is a possibility. My best guess is that the correction will run through this fall’s mid-term Congressional election. The market often presents a particularly attractive buying opportunity around the time of the mid-term election, and it may do so this year....
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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
CALGON CARBON CORP. $8 (New York symbol CCC) has sold its solvent recovery business for an undisclosed sum. The sale is part of Calgon’s plans to sell non-core assets and use the cash to pay down debt (0.6 times equity at the end of 2005). Calgon’s water-purification technology has strong growth potential, but the stock will probably move sideways until earnings improve. Hold. NCR CORP. $44 (New York symbol NCR) continues to sell more self-serve checkout systems to retailers, since it lowers their labor costs and cuts customer waiting times. Demand for NCR’s data warehousing services, which collect and analyze customer data, is also growing strongly. Buy for long-term gains. MOLSON COORS BREWING CO. $73 (New York symbol TAP) will likely earn $4.28 a share in 2006, up 8.4% from $3.95 in 2005 as it realizes more savings following the February 2005 merger of brewers Molson Inc. and Adolph Coors Co. The sale of a majority stake in its money-losing Brazilian brewer should also help earnings. Buy.
As a rule, we feel North America’s stock markets provide all the diversification that most investors need. However, a handful of foreign investments are attractive enough to be worthwhile buys, especially when they trade on New York as American Depository Receipts or ADRs. TOYOTA MOTOR CORP. ADRs $116 (New York symbol TM; WSSF Rating: Above average) is Japan’s largest automobile maker, and the world’s second-largest after General Motors. Sales outside of Japan account for 60% of the total. Toyota also makes industrial equipment such as forklifts, and pre-fabricated housing. Like most automakers, it offers vehicle loans through its financing division. Each Toyota ADR represents two of Toyota’s common shares. Japan imposes a 15% withholding tax on dividends paid to U.S. stockholders....
WELLS FARGO & CO. $66 (New York symbol WFC; WSSF Rating: Average) earned a record $1.19 a share in the first three months of 2006, up 10.2% from $1.08 a year earlier, partly due to a 26% drop in loan loss provisions. The latest per-share earnings included a $0.02 charge for employee stock options. Revenue rose 6.2%, to $8.6 billion from $8.1 billion. Revenue from home mortgages in the latest quarter fell 44% due to higher interest rates. However, thanks to Wells Fargo’s recent expansion of its branch network and acquisitions, it now has a wider range of services to offer its customers. In fact, Wells Fargo now sells around five different products, including deposit accounts and non-mortgage loans, to households where it has a least one customer. That’s up from four products per household five years ago....