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
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BANK OF AMERICA $47 (New York symbol BAC) aims to complete its acquisition of MBNA CORP. $27 (New York symbol KRB) in January 2006. The merger seems certain to go through, so MBNA stockholders should tender their shares to avoid paying brokerage fees. Bank of America is a buy. THE BOEING CO. $71 (New York symbol BA) has raised its quarterly dividend 20%, from $0.25 a share to $0.30. The new annual rate of $1.20 yields 1.7%. But high fuel costs could slow demand for new planes. Hold. GENERAL MILLS, INC. $50 (New York symbol GIS) raised its quarterly dividend 3.0%, from $0.33 a share to $0.34. The new annual rate of $1.36 yields 2.7%. Earnings should grow 6% in the current fiscal year, despite rising marketing and other costs. Buy....
DUN & BRADSTREET CORP. $65 (New York symbol DNB; WSSF Rating: Average) provides credit reports on over 100 million companies in more than 200 countries. Customers use this information to make lending and buying decisions. The company also sells a variety of other information products. The United States accounts for 75% of its revenue, and 85% of its profit. As world trade grows, Dun & Bradstreet’s potential should grow even faster as businesses seek instant information on new customers and suppliers on the other side of the globe. The company’s revenues hovered around $1.4 billion for the past five years. However, profits before one-time items rose steadily, from $1.50 a share (total $122.8 million) in 2000 to $2.98 a share ($217.7 million) in 2004, thanks to a successful restructuring plan....
Most American manufacturers companies are struggling with rising costs for labor, healthcare, energy and raw materials like steel and plastics. The rising U.S. dollar also makes their products more expensive in foreign countries. However, these three well-managed firms are doing a good job of controlling their costs. That will help them survive today’s cross currents, and prosper all the more when the economy picks up again. We see all of them as buys, however, only two are suitable for conservative investors....
ARCHER DANIEL MIDLAND CO. $25 (New York symbol ADM; WSSF Rating: Above average) has gained over 40% in the past six months as higher oil prices have spurred new interest in ethanol, a gasoline additive made from corn that improves fuel efficiency and cuts harmful emissions. ADM is the world’s largest supplier of ethanol, and is now building more plants to meet the rising demand. Right now, only about 30% of U.S. fuels contain ethanol, so there’s plenty of room for growth. Most new car engines can also handle fuels with up to 85% ethanol, compared to the 10% blend that major gas stations now offer. High oil prices have also prompted ADM to build a new plant that will make plastic resins from corn and other crops instead of oil. Companies can use these corn-based plastics in food and pharmaceutical packaging and industrial products. It will take a year or two before the plant begins production....
MCKESSON CORP. $53 (New York symbol MCK; WSSF Rating: Average) has doubled in the past year, partly due a change in the way it supplies drugs to retail pharmacies, hospitals and clinics. In the past, McKesson earned most of its profit from the spread between the price it paid for bulk drugs, and the price it charged its customers. Speculating in drug prices like this added to its risk. But new supply agreements with major drugmakers gave the company more predictable revenue streams. The recent settlement of a long-standing class-action lawsuit also cut its risk. Thanks to this new policy, McKesson’s income in its second fiscal quarter ended September 30, 2005 rose 82.8%, to $0.53 a share (total $167 million) from $0.29 a share ($86 million) a year earlier. If you exclude a $13 million gain from the sale of a division, profit rose 69%. Revenue grew 8.5%, to $21.6 billion from $19.9 billion, due to acquisitions and strong demand for software that helps McKesson’s customers manage their drug inventories....
AMEREN CORP. $52 (New York symbol AEE; WSSF Rating: Average) has 2.3 million electric customers and 900,000 natural gas customers in Missouri and Illinois. The company aims to cut its operating costs over the next three years by $65 million, mainly by cutting finance and administrative staff. To put this target in context, Ameren earned $280 million in the three months ended September 30, 2005, up 20.7% from $232 million a year earlier. However, per-share profit grew just 14.2%, to $1.37 from $1.20, due to more shares outstanding. Revenue jumped 46.2%, to $1.9 billion from $1.3 billion, mainly due to last year’s acquisition of Illinois Power Company. Coal supplies about 85% of Ameren’s fuel needs, but rising prices and environmental concerns have prompted the company to consider building a second unit at its 21-year old nuclear power facility west of St. Louis. The project would cost at least $2 billion, and take at least 10 years to complete. Although companies often underestimate the cost of complex projects, Ameren did design the current plant to make it easier to add more units....
HEWLETT-PACKARD CO. $30 (New York symbol HPQ; WSSF Rating; Above average) earned $0.14 a share (total $416 million) in its fourth fiscal quarter ended October 31, 2005, down 62.2% from $0.37 a share ($1.1 billion) a year earlier. However, if you exclude costs related to Hewlett’s new restructuring plan, per-share income in the latest quarter grew 24.4%, to $0.51 from $0.41. The company hopes its plan will cut its annual expense by $1.9 billion. The higher earnings came largely from lower costs, although revenue did rise 7.0% in the quarter, to $22.9 billion from $21.4 billion. The quick progress of Hewlett’s restructuring has helped spur a $10 rise in the stock over the past 12 months. It now trades at 16.5 times the $1.82 a share it should earn in 2006. But Hewlett spends around 4% of its $30 a share in revenue on research, which it must write off immediately, so it’s more profitable than it looks. The $0.32 dividend yields 1.1%....
MOODY’S CORP. $62 (New York symbol MCO; WSSF Rating: Average) analyzes and rates securities issued by 200,000 businesses and government agencies in 100 countries. The company also provides software to banks and other financial institutions that help them manage their credit risk. Unlike the thrifts, Moody’s profits from rising interest rates. That’s because higher rates have spurred more demand for mortgage-backed securities and other investment vehicles linked to the strong housing market. That has also led to a sharp rise in the need for Moody’s ratings, since regulations ban most institutional investors from buying securities that fall below a certain rating. Consequently, it earned $0.48 a share (total $146.6 million) in the third quarter of 2005, up 50% from $0.32 a share ($95.5 million) a year earlier. Revenue grew 17.7%, to $421.1 million from $357.9 million....
In analyzing thrift companies, investors often focus on the latest predictions on interest-rate trends and the health of the housing boom. In contrast, the top thrifts look to maintain and expand their businesses by expanding and refining the products and services they offer, and by using carefully chosen acquisitions to expand or enhance their profits. Here are three top thrift companies that are doing a good job of coping with higher rates and building a long-term relationship with a growing clientele. We see all three as buys. WASHINGTON MUTUAL INC. $44 (New York symbol WM; WSSF Rating: Average) is the nation’s largest thrift company, with over 2,500 branches and offices. Residential mortgages account for over 60% of its total loan portfolio. Other operations include corporate lending and insurance....