price to sales ratio
DEL MONTE FOODS CO. $12 (New York symbol DLM, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 198.2 million; Market cap: $2.4 billion; Price-to-sales ratio: 0.6; Dividend yield: 1.7%; WSSF Rating: Average) makes canned fruits, vegetables, sauces and soups. The company also makes Meow Mix, 9Lives and Milk-Bone brand pet foods. The company earned $62.6 million in its second quarter, which ended November 1, 2009. That’s up 129.3% from $27.3 million a year earlier. Earnings per share rose 121.4%, to $0.31 from $0.14, on more shares outstanding. If you exclude a charge related to the early repayment of senior notes, Del Monte’s earnings would have risen to $0.36 a share in the latest quarter. Del Monte continues to cut costs and improve productivity. For example, it has moved some plants to cut the distance between them and reduce shipping costs. In all, Del Monte’s cost cuts lowered its expenses by $20 million in the latest quarter....
We’ve chosen IBM as our Stock of the Year for 2010. That’s no guarantee of gains, of course. But it does tell you we feel IBM seems to offer above-average if not great returns this year, but with below-average risk. In the past decade, IBM has transformed itself from a computer maker to a computer-services provider. That’s because selling its expertise generates higher profits than selling computer hardware. Its services help clients cut costs and improve productivity, so demand should rise now that the global economy is growing again. IBM’s strong brand and reputation are also helping it expand in fast-growing countries like China, India and Brazil. As well, the continuing growth of Internet banking and the online selling of goods should fuel its earnings for years to come....
APPLE INC. $208 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 906.3 million; Market cap: $188.5 billion; Price-to-sales ratio: 4.1; No dividends paid; WSSF Rating: Average) has gained 2,089.5% since we first recommended it at $9.50 (adjusted for splits) in our November 2000 issue. Back then, the iPod was still a year away and Apple was struggling to compete with cheaper computers that ran Microsoft Windows. But we liked it because its computers continued to dominate certain industries, such as graphic design and publishing. The stock was also cheap, at around 15 times earnings, and it had little debt. To top it off, it held cash of $6 a share. Apple now trades at 26.4 times the $7.89 a share it will likely earn in its current fiscal year (which ends September 30). That p/e ratio would be higher still, but Apple recently adopted new accounting rules that let it recognize more revenue from the iPhone at the time of sale, instead of spreading it out over two years. This raised its earnings and cut its p/e....
Food processors like the seven companies we analyze below add stability to any portfolio. That’s because they’ve built brands that have strong customer loyalty and produce steady, predictable revenue streams. These seven firms’ strong brands are also helping them expand in developing markets, such as Asia and Latin America. These seven stocks trade at reasonable multiples to earnings, and have long histories of rising dividends. We see all seven as buys for long-term gains. KRAFT FOODS INC. $28 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.5 billion; Market cap: $42.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 4.1%; WSSF Rating: Above Average) is the world’s second-largest food company after Switzerland-based Nestle S.A. Its leading brands include Kraft cheese, Maxwell House coffee, Nabisco cookies and Oscar Meyer meats....
CEDAR FAIR L.P. $13 (New York symbol FUN; Income Portfolio, Consumer sector; Units outstanding: 55.2 million; Market cap: $717.6 million; Price-to-sales ratio: 0.8; No dividends paid since November 2009; WSSF Rating: Average) owns 11 amusement parks and seven water parks, mostly in the midwestern and northeastern U.S. It recently accepted an $11.50-a-unit takeover offer from Apollo Global Management, a private-equity firm. However, another private-equity firm, Q Funding III LP, owns 10% of Cedar Fair and is opposed to the takeover. The possibility of a competing offer is why the stock is trading above $11.50. Cedar Fair is still a hold.
WASHINGTON FEDERAL INC. $19 (Nasdaq symbol WFSL; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 112.4 million; Market cap: $2.1 billion; Price-to-sales ratio: 3.1; Dividend yield: 1.1%; WSSF Rating: Average) earned $7.9 million in its first quarter, which ended December 31, 2009. That’s a 63.2% drop from its year-earlier earnings of $21.5 million. Earnings per share fell 69.6%, to $0.07 from $0.23, on more shares outstanding. The company’s loan-loss provisions jumped 99.3%, to $69.8 million from $35 million. That was the main reason for the lower earnings. The increase was largely due to rising unemployment and weak housing markets in California and the Pacific northwest. Washington Federal is a hold.
ALCOA INC. $13 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 974.4 million; Market cap: $12.7 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.9%; WSSF Rating: Average) will invest $900 million in a joint venture it has formed with Saudi mining firm Ma’aden to build an aluminum plant in Saudi Arabia. To put this figure in context, Alcoa lost $924 million, or $1.06 a share, in 2009. Alcoa will own 20% of this project, but will control 40% through a partnership with other investors. The plant will make aluminum cans and construction products. That will help Alcoa take advantage of several new infrastructure projects in Saudi Arabia, including a railway and a deep-water port. The plant also has access to low-cost electricity. Production should begin in 2013....
LA-Z-BOY INC. $11 (New York symbol LZB; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 51.6 million; Market cap: $567.6 million; Price-to-sales ratio: 0.5; No dividends paid since March 2009; WSSF Rating: Speculative) makes upholstered reclining chairs and sofas. It also imports wooden furniture, such as tables and entertainment centres. The company sells its products through both large department stores and 311 La-Z-Boy Furniture Gallery stores. The company owns 68 of these outlets. Franchisees own the remaining 243. Weak U.S. housing markets have hurt new-furniture demand. The company responded with an aggressive cost-cutting plan that included laying off 25% of its workforce, shifting production to low-cost countries, such as Mexico, and closing unprofitable stores....
INVACARE CORP. $25 (New York symbol IVC; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 32.3 million; Market cap: $807.5 million; Price-to-sales ratio: 0.5; Dividend yield: 0.2%; WSSF Rating: Average) makes wheelchairs, motorized scooters and other mobility and home-care products. The company may have to pay $12 million to $14 million a year in new taxes. That’s because the U.S. Senate recently passed health-care reform legislation that would impose a sales tax on medical-device makers like Invacare. To put this new tax in context, Invacare earned $16.7 million, or $0.52 a share, in the three months ended September 30, 2009. If the proposed tax becomes law, Invacare would look to offset it by shifting more of its production overseas. It would also cut employee benefits and research spending....
SONY CORP. ADRs $33 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.0 billion; Market cap: $33.0 billion; Price-to-sales ratio: 0.4; Dividend yield: 1.4%; WSSF Rating: Average) plans to start selling TV sets than can project three-dimensional (3D) images. Demand for these sets will probably be small, at least at first. But Sony has a long history of successfully introducing new technologies, so these sets could become as popular as today’s high-definition models. The company will also use its 3D technology in its TV shows, movies and video games. That should showcase the benefits of its new TV sets when they go on sale later this year. Sony is a buy.