price to sales ratio
Bank of Nova Scotia is our top pick among Canada’s five main banks, but the other four also have bright prospects. Most are using their strong balance sheets to make profitable acquisitions at bargain prices. That should let them keep raising their dividends. ROYAL BANK OF CANADA $56 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $78.4 billion; Price-to-sales ratio: 2.2; Dividend yield: 4.1%; TSINetwork Rating: Above Average; www.rbc.com) is Canada’s largest bank, with $815.0 billion of assets. The U.S. Commodity Futures Trading Commission (CFTC) recently accused Royal of using a complex series of trades to cut its tax bill in Canada. Specifically, the CFTC says that divisions of the bank bought Canadian and U.S. dividend-paying stocks (plus futures contracts on these stocks) and quickly sold them to other divisions. These transactions would let Royal earn tax credits on the dividends it received from these holdings....
DUNDEE CORP. $24 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 55.0 million; Market cap: $1.3 billion; Price-to-sales ratio: 6.6; No dividends paid; TSINetwork Rating: Average; www.dundeecorp.com) is a holding company with subsidiaries in wealth management, real estate, resources and agriculture. Dundee is riskier than the big five banks. That’s because sales of individual investments can have a big impact on its earnings. For example, in 2011, it recorded an $870.8-million gain on the sale of subsidiary DundeeWealth. Without that gain, Dundee’s earnings fell 13.1%, to $173.2 million from $199.3 million in 2010. Earnings per share rose 5.9%, to $2.17 from $2.05, on fewer shares outstanding. Revenue fell 15.7%, to $574.0 million from $680.8 million. Dundee is still a buy.
TRANSCANADA CORP. $43 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 704.1 million; Market cap: $30.3 billion; Price-to-sales ratio: 3.3; Dividend yield: 4.1%; TSINetwork Rating: Above Average; www.transcanada.com) gets 9% of its revenue from its minority stake in the Bruce nuclear power complex in central Ontario. The company and its partners are nearly finished upgrading two of the plant’s eight reactors, which have been out of service since 1995. They plan to restart both by September 30, 2012. The plant will then supply 25% of Ontario’s power. Right now, Bruce’s six operating reactors account for 19% of the province’s power. TransCanada is a buy.
CAE INC. $10 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 257.9 million; Market cap: $2.6 billion; Price-to-sales ratio: 1.5; Dividend yield: 1.6%; TSINetwork Rating: Average; www.cae.com) makes flight simulators and runs pilot training schools. In its 2012 third quarter, which ended December 31, 2011, CAE’s revenue rose 10.3%, to $453.1 million from $410.8 million a year earlier. Demand for the company’s pilot training services continues to rise as airlines upgrade their fleets. That pushed up revenue by 13% at CAE’s civil division (which supplies 45% of the company’s overall revenue)....
Companies that supply equipment and services to oil and gas explorers give investors another way to profit from rising oil prices. To cut your risk, stick with proven market leaders like Precision Drilling and ShawCor. PRECISION DRILLING CORP. $8.91 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 276.1 million; Market cap: $2.5 billion; Price-to-sales ratio: 1.3; No dividends paid since February 2009; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract drilling services to land-based oil and gas producers, mainly in North America. It had 337 rigs in service at the end of 2011....
BOMBARDIER INC. (Toronto symbols BBD.A $4.04 and BBD.B $3.93; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $6.9 billion; Price-to-sales ratio: 0.3; Dividend yield: 2.5%; TSINetwork Rating: Average; www.bombardier.com) has won a contract to build 300 subway cars for the New York City public transit system. The company will begin delivering these trains in 2016. The $600-million deal is small next to Bombardier’s annual revenue of $18.3 billion (all amounts except share price and market cap in U.S. dollars). However, orders like this will help Bombardier win more contracts from other major cities. Bombardier is a buy. The cheaper class B shares are the better choice.
IGM FINANCIAL INC. $46 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 256.7 million; Market cap: $11.8 billion; Price-to-sales ratio: 4.3; Dividend yield: 4.7%; TSINetwork Rating: Above Average; www.igmfinancial.com) reports that it had $124.1 billion of assets under management as of March 31, 2012. That’s down 7.4% from $134.1 billion a year earlier. Lower share prices were the main reason for the drop. IGM’s fee income rises and falls with the value of the mutual funds and other securities it manages, so the company’s revenue and earnings suffer when the value of these assets falls. Still, low interest rates will probably spur investors to shift from fixed-income investments to equity-based mutual funds over the next few months. IGM Financial is a buy....
LOBLAW COMPANIES LTD. $33 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 281.4 million; Market cap: $9.3 billion; Price-to-sales ratio: 0.3; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.loblaw.ca) is buying most of the Zellers department store chain’s prescription drug accounts. U.S.-based Target Corp. (New York symbol TGT) recently acquired over 220 Zellers stores as part of its plan to expand into Canada. However, it will take Target several months to renovate these locations. As a result, Target decided not to take over Zellers’ drug business and will instead open its own pharmacies in these stores. Loblaw will pay $35 million for the Zellers accounts. That’s equal to 5% of its 2011 earnings of $769 million, or $2.73 a share. Selling drugs is more profitable than sales of food or general merchandise, so these new accounts should boost Loblaw’s earnings. The purchase will also draw more traffic to Loblaw’s stores....
TECK RESOURCES LTD. $35 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 586.0 million; Market cap: $20.5 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.3%; TSINetwork Rating: Average; www.teck.com) is a leading producer of metallurgical coal, a key ingredient in steelmaking. Coal accounted for 49% of Teck’s 2011 revenue and 57% of its earnings. The company also produces copper (27%, 28%) and zinc (24%, 15%). Teck continues to benefit as the recovering global economy pushes up commodity prices. As well, in 2008, the company bought the 80.05% of Fording Canadian Coal that it didn’t already own. This purchase has further spurred Teck’s growth.
Quick rebound from downturn
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Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investment advice, including how to use financial ratios and other information in your stock research. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Today’s tip: “Use the price-to-sales ratio correctly and you can uncover stocks with strong growth potential.”...
