price to sales ratio

TERADATA CORP. $27 (New York symbol TDC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.8 million; Market cap: $4.6 billion; Price-to-sales ratio: 2.6; WSSF Rating: Average) makes computers and software that capture and store large amounts of a business’s data, including its sales and inventory. Teradata then analyzes this information and identifies buying habits and trends. This helps its clients make better decisions. In the three months ended June 30, 2009, Teradata’s earnings dropped 10.1%, to $62 million from $69 million a year earlier. Earnings per share fell 5.3%, to $0.36 from $0.38, on fewer outstanding shares. However, Teradata is selling more high-margin services. At the same time, it is cutting overhead and travel expenses. As a result, its gross margin (gross profits as a percentage of revenue) rose to 55.3% from 54.7%. Revenue fell 7.5%, to $421 million from $455 million. Teradata gets about half of its revenue from its international operations, and the higher U.S. dollar hurt the value of this contribution during the quarter....

XEROX CORP. $8.72 (New York symbol XRX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 869.1 million; Market cap: $7.6 billion; Price-to-sales ratio: 0.5; WSSF Rating: Average) makes copiers, laser printers and other high-end publishing equipment. The company spends about 5% of its revenue on research. Over the past few years, this has let it develop new colour printers that have helped its customers cut their paper use. It has also produced other innovations, such as its proprietary solid-ink technology, which is less expensive on a per-page basis than traditional ink cartridges. The recession weighed on Xerox’s revenue and earnings in the latest quarter. In the three months ended June 30, 2009, Xerox earned $140 million, or $0.16 a share. That’s 34.9% less than the $215 million, or $0.24 a share, it earned a year earlier. Revenue fell 17.7%, to $3.7 billion from $4.5 billion....

Broadridge is unique in the financial sector. For over 40 years, the company has built up its investor-communications business and now dominates this niche industry. Its securities-clearing division makes short-term loans to brokers, which exposes it to some credit risk. But these loans are safer than subprime mortgages or credit-card debt. The company should also continue to profit as more banks and brokers look to outsource their routine transaction-processing tasks to save money. Moreover, it gains from the ongoing drop in computer costs. The stock fell from $24 in late 2007 to a low of $9.21 last November, during the financial crisis. It has now recouped most of last year’s share-price decline. We feel it has more gains ahead. BROADRIDGE FINANCIAL SOLUTIONS INC. $20 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 139.3 million; Market cap: $2.8 billion; Price-to-sales ratio: 1.3; WSSF Rating: Extra Risk) provides communication, processing and other back-office services to the investment industry. By outsourcing these activities to Broadridge, its clients can focus on their main businesses. Its clients include 250 banks, 500 mutual-fund families and over 5,000 publicly listed companies....

The recession has prompted most businesses to put off buying new equipment and lower their spending on certain services. That has hurt the earnings of these five companies, which sell specialized products and services to corporate clients. But since these products and services help businesses cut costs, their long-term prospects remain bright. We see all but one as buys. XEROX CORP. $8.72 (New York symbol XRX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 869.1 million; Market cap: $7.6 billion; Price-to-sales ratio: 0.5; WSSF Rating: Average) makes copiers, laser printers and other high-end publishing equipment. The company spends about 5% of its revenue on research. Over the past few years, this has let it develop new colour printers that have helped its customers cut their paper use. It has also produced other innovations, such as its proprietary solid-ink technology, which is less expensive on a per-page basis than traditional ink cartridges....

NVIDIA CORP. $14 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 547.8 million; Market cap: $7.7 billion; Price-to-sales ratio: 2.7; WSSF Rating: Average) continues to spend a high 25% of its revenue on developing new chips....

JONES APPAREL GROUP INC. $16 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 85.4 million; Market cap: $1.4 billion; Price-to-sales ratio: 0.4; WSSF Rating: Average) gets about half of its sales by selling its clothing through department stores. In the second quarter of 2009, Jones’ sales fell 3.1%, to $803.9 million from $829.4 million a year earlier. However, earnings rose 41.2%, to $23.3 million, or $0.29 a share, from $16.5 million, or $0.20 a share. These figures exclude the cost of closing some stores and severance. The company plans to close 240 of its 370 stores over the next two years. Most of these small outlets are in less-popular malls. This should save Jones $4 million this year, $15 million next year and $21 million in 2011. However, the stock could suffer if the current recovery stalls. Jones Apparel Group is a hold.

MCGRAW-HILL COMPANIES LTD. $32 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 314.8 million; Market cap: $10.1 billion; Price-to-sales ratio: 1.6; WSSF Rating: Average) will make over 100 of its college textbooks available to users of the Kindle and Kindle DX electronic-book readers sold by online bookseller Amazon.com. That’s on top of the over 3,000 McGraw-Hill business, medical and technical titles that Amazon now sells through its Kindle store. This could become a significant market for McGraw-Hill. Students will probably prefer to carry a Kindle, which can hold the contents of hundreds of textbooks, instead of regular books. As well, e-books are cheaper to publish than textbooks. This would increase McGraw-Hill’s profit margins. McGraw-Hill is a buy.

ALCOA INC. $12 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 974.4 million; Market cap: $11.7 billion; Price-to-sales ratio: 0.6; WSSF Rating: Average) is one of the world’s largest aluminum producers. Its customers are mainly in the aerospace, automotive and construction industries, all of which have struggled lately. Aluminum prices fell 49% in the second quarter of 2009 from a year earlier, but are 9% higher than they were in the first quarter. In response to the lower prices, The company will lay off 16% of its 87,000 employees by the end of this year. This should save it $2.4 billion a year. As well, Alcoa cut its quarterly dividend to $0.03 a share from $0.17. It now yields 1.0%. This will save an additional $430 million a year. Alcoa lost $256 million, or $0.26 a share, in the second quarter of 2009, excluding severance costs. A year earlier, it earned $553 million, or $0.67 a share. Revenue fell 41.4%, to $4.2 billion from $7.2 billion....

Both BHP and Alcoa have been cutting costs in response to lower prices for aluminum and other metals. This puts them in a strong position to grow when prices recover. We continue to view both as suitable choices for conservative investors who are seeking long-term gains. BHP BILLITON LTD. ADRs $63 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $176.4 billion; Price-to-sales ratio: 3.5; WSSF Rating: Average) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. In its latest fiscal year, which ended June 30, 2009, BHP’s revenue fell 15.6%, to $50.2 billion from $59.5 billion a year earlier. Lower resource prices were the main reason for the drop. Earnings before unusual items fell 30.2%, to $10.7 billion from $15.4 billion. Earnings per ADR fell 29.9%, to $3.85 from $5.50. (Each American Depositary Receipt represents two BHP common shares.)...

BHP BILLITON LTD. ADRs $63 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $176.4 billion; Price-to-sales ratio: 3.5; WSSF Rating: Average) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. In its latest fiscal year, which ended June 30, 2009, BHP’s revenue fell 15.6%, to $50.2 billion from $59.5 billion a year earlier. Lower resource prices were the main reason for the drop. Earnings before unusual items fell 30.2%, to $10.7 billion from $15.4 billion. Earnings per ADR fell 29.9%, to $3.85 from $5.50. (Each American Depositary Receipt represents two BHP common shares.) The stock has jumped by 70% since we first recommended it at $37 in our March 2009 issue. The gain was partly caused by BHP’s new agreement to merge its iron-ore mining operations in Western Australia with those of Rio Tinto Ltd. (New York symbol RTP) to form a new 50/50 joint venture. The deal should close in 2010, and save BHP $5 billion a year....