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
ALLIANT ENERGY CORP. $32 (New York symbol LNT; WSSF Rating: Average) has agreed to sell its investments in four Chinese power companies for $84 million. The new owners will assume $23 million in debt related to these operations. Alliant still plans to sell two more plants in China with a book value of $5 million. To put these figures in context, Alliant lost $0.53 a share (total $61.2 million) in the three months ended December 31, 2005. However, that figure includes a $122.8 million writedown of its Brazilian power plants, which it sold in January 2006 for $152 million. In the year-earlier quarter, Alliant earned $0.50 a share ($57.6 million). Selling these foreign assets goes a long way toward cutting Alliant’s risk. But higher fuel and other costs could slow its earnings growth in 2006. The $1.15 dividend yields 3.6%....
UNISYS CORP. $6.85 (New York symbol UIS; WSSF Rating: Average) plans to sell non-core assets, expand its computer outsourcing operations and cut costs. These moves will cost $300 million, but could cut its annual expenses by $250 million. The plan is showing signs of progress. In the fourth quarter of 2005, Unisys cut its losses to $0.09 a share (total $31.1 million) from $0.10 a share ($34.9 million) a year earlier. The company’s operating profit margin, excluding pension expenses, improved to 2.3%, compared with a loss of 5.2% in the year-earlier quarter. Unisys aims to raise this to at least 8% by 2008. The company also plans to drop its stockholder rights plan when it expires in March this year. These plans make hostile takeover offers more difficult, so lifting it could turn Unisys into an acquisition target....
CEDAR FAIR L.P. $30 (New York symbol FUN; WSSF Rating: Average) usually loses money in the last three months of the year, because only one of its seven amusement parks stays open all year. However, the company is drawing more people to its parks in the fall with special Halloween events. Its new Castaway Bay indoor waterpark, near its flagship Cedar Point park in Ohio, is also open year-round. Its four other waterparks close for the winter. Consequently, Cedar Fair earned $0.04 a unit in the fourth quarter of 2005, compared with a loss of $0.14 a unit a year earlier. Revenue grew 14.4%, to $78.0 million from $68.2 million. Attendance rose 13%, and average in-park spending per guest grew 5%. Cedar Fair plans to spend $1.08 a unit on capital improvements in 2006, down from $1.45 in 2005. It’s also cutting attendance prices at Cedar Point to encourage more repeat visits. These moves should give it more cash for distributions. The current annual rate of $1.84 a unit yields 6.1%....
ALLTEL CORP. $63 (New York symbol AT; WSSF Rating: Average) has agreed to merge its traditional wire line local and long-distance phone operations with Valor Communications Group, so it can focus on its fast-growing wireless operations. Alltel stockholders will then receive one common share in the new wireless-focussed Alltel, plus 1.05 common shares of the new local/long distance-focussed Valor. Alltel investors will only be liable for capital-gains taxes when they sell their new Valor shares. Post-spinoff, Alltel will cut its annual dividend rate from $1.54 a share to $0.50, for a yield of 0.8%. But the new Valor will pay an annual dividend of $1.00 a share, so the spin-off will have little overall impact on the income from an existing Alltel holding....
Today, all too many investors try to take investment cues from short-term developments like quarterly earning reports, the timing of new product releases and so on. However, no one can consistently predict these short-term factors. That’s why you’re far better off to base investment decisions on trends and developments that last for years if not decades. That’s especially true with a stock like Sony, which has been out of favor with investors since the 1990s and now trades below its 1997 peak. Though its earnings were irregular and it made some bad business decisions, Sony built up a great deal of hidden value in that time. It now seems set for far better results in the next seven years....
One of our main rules for successful investing is to spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities. If you follow this rule, you improve your chances of making money no matter what happens in the market. For example, manufacturing stocks may suffer if raw materials prices rise, but in that case your Resources investment will grow. Rising wages can put pressure on manufacturers, but your Consumer stocks will do better as workers spend more. If borrowers can’t pay back their loans, your Finance stocks will suffer. But high default rates usually lead to lower interest rates, which in turn pushes up the value of your Utilities stocks. Right now, it’s particularly crucial to avoid investing too heavily in the Resources sector. Up until a few years ago, Resources stocks were among the worst performers. But thanks to soaring energy and metal prices in 2005, they’ve made up for their poor performance early in this decade with big recent gains....
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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
ALBERTSONS INC. $25 (New York symbol ABS) has accepted a takeover offer from a private group led by Supervalu Inc. Albertson’s stockholders will get $20.35 in cash, plus 0.182 of a Supervalu share. Based on Supervalu’s current stock price, Albertsons’ stock is trading slightly below the offer’s value of roughly $26.30 a share. We’ll have more to say in a future issue. For now, the stock is still a hold. FREESCALE SEMICONDUCTOR INC. $26 (New York symbol FSL) earned $0.45 a share in the fourth quarter of 2005, up sharply from $0.01 a year earlier, mainly due to cost controls. Revenue grew 3.5% on stronger demand for chips from carmakers and Internet networking equipment manufacturers. Buy. APACHE CORP. $71 (New York symbol APA) has agreed to pay $675 million for several oil and gas properties in Argentina. The price is equal to about 40% of the $1.7 billion or $5.04 a share it earned in 2004. Most of these assets are not in production, but Apache feels that its expertise in areas with similar geology will help it boost output. Buy.
J.P. MORGAN CHASE & CO. $38 (New York symbol JPM; WSSF Rating: Above average) is the third-largest bank in the United States, after Citigroup and Bank of America. The company provides a wide range of personal financial services including deposits, checking, loans and mortgages, through over 2,500 branches in 17 states. Other businesses include corporate banking, brokerage and wealth management services. It has offices in over 50 foreign countries. J.P. Morgan’s revenue grew from $10.8 billion in 2001 to $19.8 billion in 2005, mainly due to its 2004 acquisition of Bank One Corp. for $58 billion in stock. Earnings fell from $0.81 a share (total $1.7 billion) in 2001 to $0.80 a share ($1.66 billion) in 2002, but rose to $3.24 a share ($6.7 billion) in 2003 due to a 65% drop in loan loss provisions....