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
NORDSTROM, INC. $41 (New York symbol JWN; WSSF Rating: Average) operates 155 stores in 27 states, including 98 full size department stores. Nordstrom stores specialize in upscale fashions and home décor items. In its third fiscal quarter ended October 29, 2005, Nordstrom earned $0.39 a share (total $107.5 million), up 44.4% from $0.27 a share ($77.8 million) a year earlier. Sales rose 11.3%, to $1.67 billion from $1.5 billion, while same-store sales grew 5.9%. Most of Nordstrom’s earnings gain is due to its new computerized inventory control system. It helped cut the company’s general and administrative costs in the latest quarter to 28.9% of sales, down from 30.2% a year earlier. The new system helps make sure that stores do not run out of popular merchandise. This cuts down on the need for costly clearance sales....
Apparel companies have performed strongly in the past few years. However, competition from big discount chains is starting to slow their growth. Department-store mergers also leave them with fewer wholesale customers, while rising fuel costs and growing household debt could cut into consumer spending in 2006. These companies also face rising costs and competition from cheaper clothing from Asia, and from retailers who are also launching more private labels. Outsourcing clothing production to foreign factories can help cut costs, but new textile trade rules with China also add to their uncertainty. We still like the long-term prospects of these three apparel stocks, but only two are buys right now. JONES APPAREL GROUP, INC. $31 (New York symbol JNY; WSSF Rating: Average) designs and markets men’s, women’s and children’s clothing, footwear and accessories. Major brands include Jones New York, Gloria Vanderbilt and Nine West. Jones hires independent manufacturers to produce these products. It sells through big department stores, and through its own chain of roughly 1,050 retail outlets....
APPLE COMPUTER INC. $74 (Nasdaq symbol AAPL; WSSF Rating: Extra risk) has risen eight-fold for us since we first recommended it at $9.50 in November 2000. Much of this rise is due to the huge success of its iPod digital music players. The company sold 14 million iPods in its first fiscal quarter ended December 31, 2005, up from 4.6 million a year earlier. That helped lift Apple’s revenue by 65.7% in the quarter, to $5.8 billion from $3.5 billion. Per-share income rose 85.7%, to $0.65 from $0.35. Many iPod buyers are also switching to Apple’s Macintosh computers, whose sales grew 20% in the quarter. Computer sales could slow down in the next few months as buyers wait for faster models that use chips made by Intel. Buyers may also hold off until they can get software that takes full advantage of these new chips....
Some investors fear that Voice over Internet Protocol (VoIP) will be the death of companies like Verizon, because it lets phone calls bypass the phone companies and travel over the Internet. We doubt that, since established phone companies are bundling services and taking other steps to maintain their profits. However, some companies are sure to profit from VoIP. Avaya is likely to be one of them. That’s why we are adding it to our WSSF Portfolio for Aggressive Growth. AVAYA INC. $10 (New York symbol AV; WSSF Rating: Average) makes telecommunications equipment that helps over one million businesses and government agencies manage their phone and data networks. Avaya was a division of Lucent Technologies Inc. until September 30, 2000, when Lucent handed out its Avaya shares to its investors....
We’ve often pointed out that growth by takeover or merger is riskier than internal growth. It’s especially risky when companies make a habit of it. However, well-established companies do sometimes pole-vault over their growth targets with well-thoughtout, well-timed, one-of-a-kind mergers, with or takeovers of, well-established companies that have complementary profit centers or growth potential. These three companies have done just that recently. Right now, however, only two are buys....
BORDERS GROUP INC. $24 (New York symbol BGP; WSSF Rating: Average) rose recently on rumors that a group of private investors is preparing to launch a takeover bid for the company. It’s likely these investors see many of the same qualities in Borders that we see. In addition, the company has no controlling stockholder to oppose a takeover. Same-store sales at Borders’ domestic superstores continue to grow, up 2.2% between October 23, 2005 and January 8, 2006. Although same-store sales at its mall-based stores fell 2.6%, that beat earlier forecasts. Borders plans to convert more of its Waldenbooks outlets to the Borders Express format, which tend to generate more traffic and sales. That should also help spur this division’s sales growth. The stock now trades for 16.9 times the $1.42 a share that it will likely earn in the fiscal year ending January 31, 2006. Borders is also attractive at roughly 40% of its sales of $59 a share. The $0.40 dividend yields 1.7%....
BUCKEYE PARTNERS L.P. $45 (New York symbol BPL; WSSF Rating: Average) has agreed to buy two oil storage terminals in the Midwest, and a 350-mile natural gas liquids pipeline between Colorado and Kansas. Buckeye did not disclose the price of these new assets, but will borrow about $120 million from its short-term credit lines to pay for them. To put that in perspective, Buckeye earned $1.97 a unit (total $72.3 million) in the first nine months of 2005. The partnership has used acquisitions to spur its growth in the past few years, which adds to its risk. These new purchases will likely raise its long-term debt, from 1.1 times unitholders’ equity at September 30, 2005 to around 1.3 times. However, the extra cash flow from these assets should let Buckeye increase its annual distribution rate of $2.90 a unit, which yields 6.4%....
Our Wall Street Stock Forecaster approach has three key rules: 1. invest mainly in well-established companies; 2. spread your money out across the five main economic sectors (we provide sector classifications in our monthly Portfolio supplements); 3. focus on stocks that are out of the media/broker limelight. This approach led us in our January 2001 issue to recommend a little-known trucking company, Arkansas Best. In the five years since then, Arkansas Best has roughly tripled for us; meanwhile, the Standard & Poor’s 500 has lost 1.4%. Arkansas Best still has the investment quality and competitive advantages that drew us to it five years ago. It has a spotless balance sheet, a strong reputation with customers and great cost-controlling skills. We still see it as a buy for long-term 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