price to sales ratio
MCKESSON CORP. $60 (New York symbol MCK; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 261.5 million; Market cap: $15.7 billion; Price-to-sales ratio: 0.2; Dividend yield: 1.2%; WSSF Rating: Average) is the largest wholesale drug distributor in the U.S. and Canada. It also owns 49% of Mexico’s largest drug distributor. McKesson’s customers include 40,000 pharmacies, as well as doctor’s offices, hospitals and clinics. The company also supplies surgical tools and health and beauty products. McKesson’s revenue rose 25.0%, from $87.0 billion in 2006 to $108.7 billion in 2010 (fiscal years end March 31). Earnings rose at a much faster pace of 69.7%, from $737 million in 2006 to $1.3 billion in 2010. The company is an aggressive buyer of its own shares, so earnings per share rose 95.7%, from $2.34 in 2006 to $4.58 in 2010.
Big profits from drug management
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Like most newspaper publishers, Torstar has suffered because of free or low-cost Internet competition in news and ads, as well as the recession. In response, it aggressively cut its costs, which helped it stay profitable, despite the weak economy. Torstar’s lower costs put it in a strong position to gain as the economy rebounds. Rising revenue from its Harlequin subsidiary and its other less-cyclical businesses also helps temper its risk. Moreover, growing demand for electronic books (or e-books) enhances Harlequin’s long-term growth potential. TORSTAR CORP. $9.49 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 79.1 million; Market cap: $750.7 million; Price-to-sales ratio: 0.5; Dividend yield: 3.9%; SI Rating: Above Average) publishes The Toronto Star, which is Canada’s largest daily newspaper in terms of circulation. The company also publishes three other daily papers and over 100 weeklies, mainly in southern Ontario. Newspapers account for about 70% of Torstar’s revenue, and 65% of its earnings....
INDIGO BOOKS & MUSIC INC. $15 (Toronto symbol IDG; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 24.7 million; Market cap: $370.5 million; Price-to-sales ratio: 0.4; Dividend yield: 2.9%; SI Rating: Average) also hopes to profit from growing sales of e-books. So far, however, e-books are cutting into its profit. In December 2009, the bookseller launched its Kobo e-book downloading web site. In May 2010, it started selling its own Kobo e-book reader. In its first quarter, which ended July 3, 2010, Indigo spent $3.2 million on Kobo development, and $1.0 million more on marketing and promotions. These start-up costs swelled Indigo’s losses in the quarter to $5.3 million, or $0.21 a share. A year earlier, it lost $2.8 million, or $0.09 a share. However, Indigo earns most of its profit in its third quarter, which includes the Christmas shopping season, and generally loses money the rest of the year....
The federal government plans to phase out coal-fired power plants by around 2025. Under the proposals, utilities would have to close their coal-fired plants when they reach 45 years of age, or when their power-purchase contracts with provincial electricity regulators expire, whichever is later. Coal-plant operators may extend the lives of these plants if they can lower their carbon emissions to the same level as natural-gas-fired plants. The plan is still in its early stages, and much could change before it comes into effect in 2011. The new rules will hurt some power producers more than others. But these four utilities should be able to pass most of the extra costs on to their customers. CANADIAN UTILITIES LTD. (Toronto symbols CU (class A non-voting) $47 and CU.X (class B voting) $47; Income Portfolio, Utilities sector; Shares outstanding: 125.8 million; Market cap: $5.9 billion; Price-to-sales ratio: 2.2; Dividend yield: 3.2%; SI Rating: Above Average) distributes electricity and natural gas in Alberta. It also operates 20 power plants: 15 in Canada; three in Australia and two in the U.K. As well, the company sells its engineering services to other firms. ATCO Ltd. (also in this issue) owns 52.2% of Canadian Utilities....
MAPLE LEAF FOODS INC. $9.61 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 136.8 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.3; Dividend yield: 1.7%; SI Rating: Average) rose 5% in August after the Ontario Teachers’ Pension Plan sold some of its Maple Leaf shares to private equity fund West Face Capital Inc. at $8.25 a share. West Face now owns about 11.0% of Maple Leaf. The pension plan will hold on to its remaining 25.2% stake for now. West Face has a history of unlocking value in companies, so its involvement should help spur Maple Leaf’s share price. Maple Leaf Foods is a buy.
LOBLAW COMPANIES LTD. $43 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 277.3 million; Market cap: $11.9 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.0%; SI Rating: Above Average) is testing a new “minipharmacy” for its smaller supermarkets. Right now, it has in-store pharmacies in about half of its 1,000 stores. The company feels in-store pharmacies help it compete with pharmacy chains that are expanding their grocery departments, such as Shoppers Drug Mart. As well, new computers will speed up prescription processing, and give Loblaw an advantage. Loblaw is a buy.
ATCO LTD. (Toronto symbols ACO.X (class I non-voting) $51 and ACO.Y (class II voting) $51; Shares outstanding: 58.4 million; Market cap: $3.0 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.1%; SI Rating: Above Average) is a Calgary-based holding company. ATCO’s main subsidiary is 52.2%-owned Canadian Utilities Ltd. (also in this issue). ATCO has three main divisions: Utilities (which distributes electricity and natural gas); Energy (which operates power plants); and Structures & Logistics (which provides services to energy exploration and construction companies). ATCO owns 75.5% of the Structures & Logistics division; Canadian Utilities owns the remaining 24.5%. Earlier this year, the company paid a $3.0 million premium in connection with the buyback of $150 million of its preferred shares. However, the buyback should save it $3.9 million in dividend payments in 2010....
Great-West Lifeco and IGM Financial get a big part of their earnings from fee income that varies with the value of the securities they manage. Rising stock markets have increased earnings at both companies. As well, both are taking fewer writedowns on bonds and mortgage-backed securities because of improving credit markets. GREAT-WEST LIFECO INC. $25 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 947.9 million; Market cap: $23.7 billion; Price-to-sales ratio: 0.7; Dividend yield: 4.9%; SI Rating: Above Average) is Canada’s largest insurance company, with $460.2 billion of assets under management. That’s up 4.1% in the past year. Great-West also sells retirement-planning and wealth-management services....
HOME CAPITAL GROUP INC. $43 (Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 34.7 million; Market cap; $1.5 billion; Price-to-sales ratio: 3.1; Dividend yield: 1.5%; SI Rating: Average) specializes in residential first mortgages to small business owners, the self-employed and others who don’t meet the stricter criteria of larger, traditional lenders. The company earned a record $1.25 a share in the three months ended June 30, 2010. That’s up 26.3% from $0.99 a year earlier. Low interest rates continue to fuel strong demand for new mortgages. As well, Home Capital recently began offering credit cards and other types of consumer loans. Bad loans fell to 0.67% of its total loan portfolio from 1.26% a year earlier. Home Capital Group is a buy.
IMPERIAL OIL LTD. $39 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; Shares outstanding: 847.6 million; Market cap: $33.1 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.1%; SI Rating: Average) has formed a new joint venture with parent company ExxonMobil Corp. (New York symbol XOM) and BP plc (New York symbol BP). This new company will explore for oil and natural gas in the Beaufort Sea. Imperial and Exxon will each own a 25% stake in the venture, and BP will own 50%. Underwater exploration in the arctic is hugely expensive, so this joint venture will help all three partners lower their costs. Developing these offshore fields would also help Imperial with its plan to build a new pipeline that would pump gas from the Mackenzie Delta to Alberta. However, exploration will have to wait while regulators review offshore drilling safety standards in the wake of BP’s oil spill in the Gulf of Mexico....