price to sales ratio
FEDEX CORP. $77 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 313.2 million; Market cap: $24.1 billion; Price-to-sales ratio: 0.7: Dividend yield: 0.6%; WSSF Rating: Average) delivers packages and documents in the U.S. and over 220 other countries. Its fleet of 80,000 trucks and 664 aircraft delivers over 8 million packages a day. FedEx’s revenue rose 17.5%, from $32.3 billion in 2006 (its fiscal year ends May 31) to $38.0 billion in 2008. Many businesses use FedEx to restock their inventories and ship their products; as a result, the recession cut its 2009 revenue by 6.5%, to $35.5 billion. Shipping volumes improved in 2010, but Fed-Ex had to cut its rates to stay competitive. That’s why its 2010 revenue fell 2.1%, to $34.7 billion.
Recession cut earnings by 44%
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Over the past few decades, I’ve often pointed out that the top five Canadian banks have provided some of the highest returns with least risk that you could find in our market. That’s why I’ve long recommended that all Canadian investors own two or more. The top five banks slumped deeply during the 2007-2009 market downturn, like most stocks. But since the market turnaround of March 2009, several of the top five have recovered and gone on (at least briefly) to all-time highs. Few other stock groups have done as well. We continue to recommend all five, but our favourite is still Bank of Nova Scotia (we analyze the other four banks later in this issue)....
MAPLE LEAF FOODS INC. $9.27 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 136.8 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.2; Dividend yield: 1.7%; SI Rating: Average) slumped 4% on June 8, on news that the Ontario Teachers’ Pension Plan plans to sell its 35.3% stake in the company. Investors worry that some hidden problem has prompted the pension plan to sell Maple Leaf. The McCain family, which owns 31.6% of Maple Leaf, seems uninterested in buying the Teachers’ stake. However, major investors sell major investments (or choose not to buy out partners who want to sell) for a variety of reasons. The Teachers pension plan has been shifting away from common stocks and into real estate, foreign companies, private companies and other investments for a decade. Canadian stocks formerly made up a majority of the plan’s holdings. Now they represent 9%. Maple Leaf is the plan’s biggest single holding of a listed company. It bought more Maple Leaf as recently as late 2008....
ROYAL BANK OF CANADA $52 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $72.8 billion; Price-to-sales ratio: 2.0; Dividend yield: 3.8%; SI Rating: Above Average) is Canada’s largest bank, with total assets of $655.1 billion. In the three months ended April 30, 2010, Royal earned $1.3 billion, or $0.88 a share. That’s a big improvement over the $50 million, or $0.07 a share, it lost a year earlier. The year-earlier loss was mainly caused by a $1-billion writedown of goodwill related to U.S. banks that Royal had purchased. Without this charge, Royal would have earned $950 million, or $0.63 a share, in the year-earlier quarter. Revenue rose 3.0% in the most recent quarter, to $7.0 billion from $6.8 billion. Royal’s international operations account for roughly 10% of its revenue, and the stronger Canadian dollar cut their contribution by $534 million. The higher dollar also lowered the bank’s earnings by $0.06 a share. However, Royal is setting aside less cash to cover bad loans: its loan-loss provisions fell 48.3%, to $504 million from $974 million....
IGM FINANCIAL INC. $39 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 262.4 million; Market cap: $10.2 billion; Price-to-sales ratio: 4.4; Dividend yield: 5.3%; SI Rating: Above Average) reported that its clients redeemed $219.7 million of investments in May 2010, mainly because of stock-market volatility caused by the European debt crisis. Still, as of May 31, 2010, IGM’s assets under management were up 9.2%, to $118.5 billion from $108.5 billion a year earlier. That’s mainly because, despite recent volatility, stock markets are up about 10% from a year ago. IGM’s performance was much better than that of the Canadian mutual-fund industry, which posted an average 3.4% drop in assets under management for the same period. IGM’s fees rise and fall with the value of the mutual funds and other securities it manages, so the company’s revenue and earnings benefit when the value of these assets rise. IGM Financial is a buy.
DUNDEE CORP. $13 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 73.8 million; Market cap: $959.4 million; Price-to-sales ratio: 0.9; No dividends paid; SI Rating: Average) is a holding company with subsidiaries in three main areas: wealth management, real estate and resources. In the three months ended March 31, 2010, Dundee earned $23.9 million, or $0.27 a share. That’s a big improvement over the $8.2 million, or $0.11 a share, it lost a year earlier. In the latest quarter, Dundee realized an $18.6-million gain on the sale of securities. In the year-earlier quarter, it wrote down $9.0 million of securities. That was the main reason for the improved earnings. Dundee is a hold.
THOMSON REUTERS CORP. $37 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 831.1 million; Market cap: $30.8 billion; Price-to-sales ratio: 2.4; Dividend yield: 3.3%; SI Rating: Above Average) has two main divisions: Markets (60% of revenue), which sells financial information to banks and other financial institutions; and Professional (40%), which sells specialized information to professionals in the legal, accounting, scientific and health-care fields. The company gets about 60% of its revenue from North and South America, followed by Europe (30%) and Asia (10%). In the three months ended March 31, 2010, Thomson’s revenue rose 0.3%, to $3.14 billion from $3.13 billion a year earlier (all amounts except share price and market cap in U.S. dollars). Earnings fell 9.3%, to $304 million from $335 million. Earnings per share fell 10.0%, to $0.36 from $0.40, on more shares outstanding....
INDIGO BOOKS & MUSIC INC. $15 (Toronto symbol IDG; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 24.5 million; Market cap: $367.5 million; Price-to-sales ratio: 0.4; Dividend yield; 2.9%; SI Rating: Average) is seeing strong demand for its new Kobo electronic-book reader. That’s largely because the Kobo reader costs much less than its main competitor, Amazon.com’s Kindle. Indigo owns 57.7% of the Kobo joint venture; U.S.-based bookseller Borders Group Inc. (New York symbol BGP) and other private investors own the remaining 42.3%. The joint venture will soon start selling Kobo readers in the U.S., Australia and New Zealand. The partners also plan to launch Kobo in Europe, China and India. Indigo is a buy.
Loblaw aims to spur its growth by selling more non-food items, such as clothing and drugs. Metro hopes to attract more customers by improving its stores and launching new loyalty programs. We see both stocks as buys. LOBLAW COMPANIES LTD. $40 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 276.2 million; Market cap: $10.7 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.1%; SI Rating: Above Average) is Canada’s largest food retailer, with roughly 1,000 stores across the country. Loblaw continues to benefit from its ongoing restructuring plan. The company is fixing its supply networks, improving its distribution centres’ productivity and installing new inventory-information systems. These moves helped increase Loblaw’s earnings by 25.7% in the three months ended March 27, 2010, to $137 million, or $0.49 a share. A year earlier, it earned $109 million, or $0.40 a share....
TECK RESOURCES LTD. $32 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 589.4 million; Market cap: $18.9 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.3%; SI Rating: Average) will develop the Aqqaluk Deposit at its Red Dog zinc mine in northwestern Alaska. This deposit will replace Red Dog’s nearly depleted main deposit. Environmental opposition has delayed this development. But Teck has received the necessary permits to begin work on this project. The company did not say how much the new mine will cost, or when it would begin production. However, Aqqaluk’s reserves should last 20 years. Teck Resources is a buy.