price to sales ratio

HOME CAPITAL GROUP INC. $42 (Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 34.7 million; Market cap: $1.5 billion; Price-to-sales ratio: 3.0; Dividend yield: 1.5%; SI Rating: Average) is the parent company of Home Trust Company, which is a federally regulated firm that provides residential first mortgages to small business owners, the self-employed and others who don’t meet the stricter criteria of larger, traditional lenders. Home mortgages account for 80% of the company’s loan portfolio. The remaining 20% includes non-residential mortgages, credit cards and other types of loans. It operates five retail branches in Toronto, Vancouver, Calgary, Montreal and Halifax.

Strong history of growth

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AUTODESK INC. $28 (Nasdaq symbol ADSK; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 229.7 million; Market cap: $6.4 billion; Price-to-sales ratio: 3.8; No dividends paid; WSSF Rating: Average) makes computer-assisted design software that lets engineers and architects analyze their products’ performance early in the design process. That saves time and money, and improves the quality of the final product. In Autodesk’s 2010 fiscal year, which ended January 31, 2010, its revenue fell 26.0%, to $1.7 billion from $2.3 billion in the prior year. That’s mainly because several of Autodesk’s customers put off upgrading their computer-aided design software because of the weak economy. In response to the lower revenue, Autodesk cut over 10% of its workforce and consolidated certain facilities. These moves lowered its expenses by at least $250 million in the latest year....

SYMANTEC CORP. $17 (Nasdaq symbol SYMC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 806.2 million; Market cap: $13.7 billion; Price-to-sales ratio: 2.3; No dividends paid; WSSF Rating: Average) makes software that protects computers from viruses and intruders. Computer sales have risen with the recent launch of Microsoft’s Windows 7 operating system. Symantec has deals to pre-install its Norton Anti-Virus software on new computers, so it stands to gain as more consumers buy new computers to get Windows 7. As well, the company has shifted its focus to selling services to its business customers. Long-term service contracts give Symantec more predictable revenue streams, and cut its risk. In Symantec’s third quarter, which ended January 1, 2010, its earnings before one-time items fell 7.4%, to $326.0 million from $352.0 million a year earlier. Earnings per share fell 4.8%, to $0.40 from $0.42, on fewer shares outstanding. Revenue rose 0.8%, to $1.55 billion from $1.54 billion. Symantec gets about half of its revenue from outside the U.S. If you adjust for foreign-exchange rates, revenue would have fallen by 3%....

ADOBE SYSTEMS INC. $35 (Nasdaq symbol ADBE; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 524.1 million; Market cap: $18.3 billion; Price-to-sales ratio: 6.0; No dividends paid since June 2005; WSSF Rating: Average) makes Abode Acrobat, which lets users easily create, edit and share electronic documents in the popular PDF format. As well, graphic designers use Adobe’s Creative Suite of programs to create web pages and print publications. The company also makes Adobe Flash. This program lets web sites display graphics and animation. In October 2009, Adobe completed its $1.8-billion purchase of Omniture Inc., which makes software that measures and analyzes web-site traffic. Adobe will sell this software to its customers, who can use the information it provides to improve their web pages and increase their online ad revenues. Omniture will add around $335 million a year to Adobe’s revenue. Adobe earned $814.7 million, or $1.54 a share, in the year ended November 27, 2009. That’s down 28.3% from $1.1 billion, or $2.07 a share, in the prior year. These figures exclude several unusual items, including costs related to the Omniture purchase. Revenue fell 17.7%, to $2.9 billion from $3.6 billion....

MICROSOFT CORP. $29 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.8 billion; Market cap: $255.2 billion; Price-to-sales ratio: 4.2; Dividend yield: 1.8%; WSSF Rating: Above Average) is the world’s largest software company. Its Windows operating system runs 90% of the world’s computers. As well, the company’s Office suite of programs dominates the business-software field. Together, Windows and Office account for 60% of Microsoft’s revenue and 80% of its earnings. Microsoft is working to cut its reliance on Windows and Office. For example, its new 10-year alliance with Internet search provider Yahoo! Inc. (Nasdaq symbol YHOO) will help both companies increase their share of the online advertising market. In Microsoft’s second quarter, which ended December 31, 2009, it earned $6.7 billion, or $0.74 a share. That’s up 59.6% from $4.2 billion, or $0.47 a share, a year earlier. Revenue rose 14.4%, to $19.0 billion from $16.6 billion. The company spends around 11% of its revenue on research....

YUM! BRANDS INC. $34 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 469.3 million; Market cap: $16.0 billion; Price-to-sales ratio: 1.5; Dividend yield: 2.5%; WSSF Rating: Average) operates over 37,000 restaurants in more than 110 countries. It has five main banners: KFC (fried chicken), Pizza Hut, Taco Bell (Mexican food), A&W (hamburgers) and Long John Silver’s (seafood). Yum’s sales rose 20.6%, from $9.3 billion in 2005 to $11.3 billion in 2008. In 2009, sales fell 4.1%, to $10.8 billion. That’s mainly because of the negative impact of exchange rates. If you exclude exchange rates, sales would have risen by 1%. Same-store sales in 2009 fell 1% in China and 5% in the U.S., but rose 1% in Yum’s other overseas markets. Earnings rose 40.6%, from $762 million in 2005 to $1.1 billion in 2009. Earnings per share rose 73.4%, from $1.28 in 2005 to $2.22 in 2009, on fewer shares outstanding. If you exclude unusual items, per-share earnings would have risen 70.9%, from $1.27 in 2005 to $2.17 in 2009....

MCDONALD’S CORP. $65 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.1 billion; Market cap: $71.5 billion; Price-to-sales ratio: 3.1; Dividend yield: 3.4%; WSSF Rating: Above Average) is the world’s largest fast-food company by sales. It has around 32,500 restaurants in over 120 countries. Rising prosperity in developing countries is making McDonald’s food more affordable to more consumers. Overseas markets now supply 65% of its revenue, and nearly half of its earnings. McDonald’s sales rose 15.0%, from $20.5 billion in 2005 to $23.5 billion in 2008. Sales fell 3.3% in 2009, to $22.7 billion. That’s because the rising U.S. dollar hurt the contribution of its international outlets. If you disregard foreign-exchange rates, sales would have risen 2% in 2009. Overall same-store sales rose 3.8% in 2009, mainly on gains in the U.S. (up 2.6%), Europe (up 5.2%) and the Asia Pacific region (up 3.4%)....

Opening a restaurant is one of the riskiest business decisions you can make. It leaves you at the mercy of local weather, neighbourhood deterioration, temperamental cooks, low-paid cleaners and servers, plus the constant threat of new competitors. No wonder restaurants have the highest failure rate of all new businesses. However, restaurant chains are an entirely different matter. Successful chains have overcome all these problems, mainly by diversifying geographically and profiting from economies of scale. They can profit from the steady demand and high profit margins available to successful restaurants. McDonald’s is our top conservative fast-food stock. Yum Brands is our choice for the aggressive. Yum is smaller and relies on China for growth, but these risk factors expand its potential....

TOYOTA MOTOR CO. ADRs $74 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.6 billion; Market cap: $118.4 billion; Price-to-sales ratio: 0.6; Dividend yield: 1.3%; WSSF Rating: Above Average) has dropped 13% since the start of 2010. That’s mainly because the company recalled 8.5 million cars to fix problems that could lead to sudden acceleration. The cars’ gas pedals could get stuck in the downward position, or their floor mats could get trapped under their gas pedals. Toyota is also recalling hybrid cars for brake problems. This is an example of “Headline Risk.”That’s when well-established companies like Toyota, which is rarely the subject of any bad news, report unexpected and seemingly spectacular bad news. This attracts short sellers and scares off buyers, and the combination leads to a sudden but usually temporary stock-price drop....

An improving global economy should push up software sales in 2010. As well, software makers typically earn higher profit margins than other technology companies, so even a modest sales increase would sharply lift these companies’ earnings. Even so, the software industry remains highly volatile. To cut your risk, you should stick with well-established software companies, such as these four. All are market leaders, and have the financial strength to keep improving their products and developing new ones. Still, we only see three as buys right now. MICROSOFT CORP. $29 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.8 billion; Market cap: $255.2 billion; Price-to-sales ratio: 4.2; Dividend yield: 1.8%; WSSF Rating: Above Average) is the world’s largest software company. Its Windows operating system runs 90% of the world’s computers. As well, the company’s Office suite of programs dominates the business-software field. Together, Windows and Office account for 60% of Microsoft’s revenue and 80% of its earnings....