price to sales ratio

UNITED TECHNOLOGIES CORP. $51 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 942 million; Market cap: $48 billion; Price-to-sales ratio: 0.9; WSSF Rating: Above Average) has six main businesses: Carrier makes heating and air-conditioning equipment (25% of 2008 revenue, 17% of profit); Otis makes and services elevators (22%, 32%); Pratt & Whitney makes aircraft engines (22%, 27%); Hamilton Sundstrand makes electronic controls for aircraft (11%, 13%); UTC Fire & Security sells burglar alarms and fire-protection services (11%, 6%); and Sikorsky makes helicopters (9%, 5%). The U.S. government is United Technologies’ biggest customer, and accounts for about 13% of its yearly revenue. We feel that United Technologies’ diversification is one of its major strengths. All of its businesses are leaders in their industries. Plus, the company sells products to both original-equipment manufacturers and aftermarket customers. That cuts its risk. For example, when demand for new planes is weak, airlines will probably buy more replacement parts instead of new aircraft. When the economy improves, aircraft makers will order more new engines and electronics. This will offset lower sales of spare parts....

Oil prices are rising again, but it’s unlikely they will soon match or exceed the record highs they hit in 2008. Over the long-term, we feel the best way for conservative investors to profit from volatile energy prices is with integrated oil producers like Imperial Oil. If oil prices rise, it earns more from crude production. But if oil prices fall, Imperial’s refining and marketing operations, which need crude oil to make gasoline and other fuels, will become more profitable. IMPERIAL OIL LTD. $46 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; Shares outstanding: 848.9 million; Market cap: $39 billion; Price-to-sales ratio: 1.3; SI Rating: Average) is Canada’s largest integrated oil company. Imperial accounts for about 6% of Canada’s total oil production. U.S.-based ExxonMobil Corp. (New York symbol XOM) owns 69.6% of Imperial’s shares. Imperial gets most of its revenue from its “downstream” businesses. These consist of its four refineries and 1,900 retail gas stations, which operate under the “Esso” banner. Downstream operations accounted for 77% of Imperial’s 2008 revenue, but just 21% of its earnings....

SNC-LAVALIN GROUP INC. $43 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 151 million; Market cap: $6.5 billion; Price-to-sales ratio: 1.0; SI Rating: Average) recently bought Newfoundland-based Spectrol Energy Services Inc. for an undisclosed sum. Spectrol sells engineering and technical services to oil and natural-gas producers off Canada’s east coast. SNC hopes the acquisition will let it take advantage of the recent jump in oil prices. However, 60% of SNC’s earnings already come from customers in the resource sector, and commodity prices are still well below last year’s peaks. As well, tight credit markets could make it difficult for these clients to borrow cash for new projects. SNC-Lavalin is a hold.

CGI GROUP INC. $10 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 308.6 million; Market cap: $3.1 billion; Price-to-sales ratio: 0.8; SI Rating: Extra Risk) sells computer systems and specialized software that help businesses automate routine transactions. This allows CGI’s clients, which include Bank of Montreal and AT&T, to focus on their main operations. Many of its customers sign long-term contracts. This gives CGI strong recurring revenue. In its second fiscal quarter, which ended March 31, 2009, CGI’s revenue rose 1.9%, to $948.3 million from $930.8 million a year earlier. The United States accounts for over 40% of CGI’s revenue, so it benefits from a falling Canadian dollar: A 7.5% gain from currency-exchange rates helped offset a 5.6% drop in contract revenue. Earnings rose 10.4%, to $76.3 million from $69.1 million. Earnings per share rose 19.1%, to $0.25 from $0.21, on fewer shares outstanding. CGI’s $12-billion order backlog is equal to 3.2 times its annual revenue....

CANADA BREAD CO. LTD. $41 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) is Canada’s second-largest maker of fresh and frozen breads, rolls and bagels. (Weston Bakery is the largest). Canada Bread also makes pastas and sauces. Its main brands include Dempster, Tenderflake and Olivieri. As part of its long-term growth strategy Canada Bread plans to expand its overseas operations, which account for 25% of its sales. It’s now one of the largest makers of bagels and bakery products in the U.K. Canada Bread also owns three bakery plants in the U.S. In the first half of 2008, Canada Bread raised its prices to offset rising energy and wheat costs. Now that these costs have fallen, the company is starting to realize the benefits of this move. In the three months ended March 31, 2009, its earnings rose 22.9%, to $0.59 a share (or a total of $14.9 million) from $0.48 a share (or $12.2 million) a year earlier. These figures include unusual items, such as costs related to a fire at a bakery plant in the U.K. The company received $1.7 million in insurance proceeds to repair the damage. If you exclude these items, earnings per share rose 15.4%, to $0.60 from $0.52. Sales rose 7.9%, to $413.1 million from $382.9 million....

MAPLE LEAF FOODS INC. $8.70 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 129.3 million; Market cap: $1.1 billion; Price-to-sales ratio: 1.0; SI Rating: Average) is Canada’s largest food-processing company. It mainly produces fresh and prepared beef and poultry under the Maple Leaf and Schneider brands. Maple Leaf also owns 89.8% of Canada Bread. In the three months ended March 31, 2009, Maple Leaf’s sales rose 6.3%, to $1.3 billion from $1.2 billion a year earlier. Ingredient costs rose during the quarter, but Maple Leaf was able to pass these on by raising the prices on some of its products. As well, Maple Leaf gets 30% of its sales from outside of Canada, so the lower Canadian dollar helped its results. Earnings soared to $2.9 million, or $0.02 a share, from a loss of $10,000, or nil per share, a year earlier. If you disregard costs related to the company’s restructuring plan, earnings per share would have risen to $0.05 from $0.04....

SAPUTO INC. $22 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 207.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.8; SI Rating: Average) is Canada’s largest producer of dairy products such as milk, butter and cheese. It also has operations in the United States, Argentina and Europe. Last December, Saputo bought Neilson Dairy, the dairy division of Weston Foods, for $465 million. Neilson makes a wide variety of dairy products in Ontario, and generates $600 million a year in sales. Thanks to Neilson, as well as Saputo’s earlier acquisition of a Wisconsin-based cheese maker for $161 million, its revenue rose 14.5% in the fiscal year ended March 31, 2009, to $5.8 billion from $5.1 billion in the prior year....

All three of these leading Canadian food processors are down from their 2008 highs. However, they should all benefit from falling prices for wheat and other raw materials. As well, the recession may actually help their sales by prompting more people to eat at home. Even so, we only see two of them as buys right now. SAPUTO INC. $22 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 207.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.8; SI Rating: Average) is Canada’s largest producer of dairy products such as milk, butter and cheese. It also has operations in the United States, Argentina and Europe. Last December, Saputo bought Neilson Dairy, the dairy division of Weston Foods, for $465 million. Neilson makes a wide variety of dairy products in Ontario, and generates $600 million a year in sales....

GENNUM CORP. $5.01 (Toronto symbol GND; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.4 million; Market cap: $177.4 million; Price-to-sales ratio: 1.3; SI Rating: Above Average) gets 70% of its revenue by making equipment that stores, manipulates and transfers video signals. The other 30% comes from chips that improve the flow of data inside computer networks. The company focuses on designing products, and outsources most of its manufacturing to chipmakers in Asia. We’ve long recommended Gennum, partly for its high research spending, which is usually over 30% of its revenue. Last year, it started deferring some of its research costs related to certain products. Gennum will recognize these costs once it starts selling the products. However, the company operates in a highly competitive field, and there’s no guarantee of success. Deferring these research costs helps current earnings, but increases the risk of a future writedown against earnings. Gennum recently abandoned its friendly takeover bid for rival chipmaker Tundra Semiconductor Corp. (Toronto symbol TUN) after Tundra accepted a higher offer from a U.S. firm. However, Tundra paid Gennum a $5-million (Canadian) break-up fee. To put this figure in context, Gennum lost $800,000, or $0.02 a share, in its first quarter, which ended February 28, 2009. It earned $4.6 million, or $0.13 a share, a year earlier. (Gennum reports its results in U.S. dollars, but its share price and market cap are in Canadian funds). Foreign markets account for 85% of Gennum’s sales, which leaves it vulnerable to exchange rates. In the latest quarter, it lost $1.9-million on its currency-hedging contracts. Sales in the quarter fell 35.6%, to $19.4 million from $30.1 million. TV broadcasters, hurt by falling advertising revenue, have cut their spending on new equipment....

IGM FINANCIAL INC. $42 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 262.5 million; Market cap: $11 billion; Price-to-sales ratio: 4.2; SI Rating: Above Average) is Canada’s largest independent mutual-fund company. It manages $108.5 billion of assets. Power Financial (Toronto symbol PWF) owns 56.4% of IGM. The sharp drop in stock prices has hurt IGM’s profits. In the three months ended March 31, 2009, its earnings fell 36.8%, to $133.5 million from $211.2 million a year earlier. Earnings per share fell 35.4%, to $0.51 from $0.79, on fewer shares outstanding. Revenue fell 21.7%, to $559.1 million from $714.2 million. The company continues to do a good job of hanging onto its clients. In the first quarter, the redemption rate at its main Investors Group division was 7.7%, among the lowest in the industry, and down from 7.9% in the last quarter of 2008....