price to sales ratio

VERIGY LTD. $12 (Nasdaq symbol VRGY, Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.2 million; Market cap: $698.4 million; Price-to-sales ratio: 1.5; WSSF Rating: Extra Risk) designs and makes test systems that are used in the production of computer chips. Verigy’s products help chipmakers cut down on errors and improve the reliability of their products. The company has installed more than 4,500 of its systems worldwide. Aside from test systems, Verigy sells consulting and support services. These include start-up assistance, and system calibration and repair. These account for around 45% of Verigy’s revenue, and help lower the company’s reliance on sales of new systems, which have been slowed by the recession. Verigy lost $25 million, or $0.44 a share, in its second quarter, which ended April 30, 2009. Still, that was a lot better than analysts’ predictions of a loss of $0.65 a share. In the year-earlier quarter, Verigy earned $13 million, or $0.22 a share. These figures exclude non-recurring items, particularly costs related to an 18% cut to its workforce in 2008. The layoffs should lower Verigy’s annual expenses by $60 million. The company expects to complete the plan by the end of this year. Revenue dropped 56.2%, to $71 million from $162 million....

Computer-chip stocks can put on huge growth spurts, but fall just as fast. This is because new technologies can quickly make today’s chips obsolete. To succeed over the long term, investors should focus on companies that are leaders in their markets and have large customer bases, such as these three. All have low debt and lots of cash to keep developing new products. These factors put them in a good position to quickly increase their earnings and market shares once the economy starts growing again. TEXAS INSTRUMENTS INC. $19 (New York symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $24.7 billion; Price-to-sales ratio: 2.1; WSSF Rating: Average) makes chips for a wide variety of electronic devices, including cellphones, DVD players and digital cameras. It also makes handheld calculators. The company has over 80,000 customers, but cellphone maker Nokia Corp. (New York symbol NOK) accounted for 18% of its 2008 sales....

AUTODESK INC. $21 (Nasdaq symbol ADSK, Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 228.2 million; Market cap: $4.8 billion; Price-to-sales ratio: 2.3; WSSF Rating: Average) announced last January that it will eliminate 750 jobs (or 10% of its total workforce at the time) and consolidate certain facilities. Last month, it said it will cut a further 430 jobs. In all, these moves should lower its costs by $250 million a year. This should help it stay profitable until the economy improves, and let it maintain its high research spending (over 24% of revenue). In its first quarter, which ended April 30, 2009, the software maker’s sales fell 28.9%, to $425.8 million from $598.8 million a year earlier. Earnings dropped 64.3%, to $41.9 million, or $0.18 a share, from $117.2 million, or $0.50. Despite the declines, these results beat analysts’ expectations of $0.08 a share on sales of $418.6 million. Autodesk is a buy.

MOTOROLA INC. $5.92 (New York symbol MOT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.3 billion; Market cap: $13.6 billion; Price-to-sales ratio: 0.5; WSSF Rating: Average) shipped 14.7 million cellphones in the first quarter of 2009. That’s down 46.4% from 27.4 million a year earlier. This was the main reason why Motorola’s first-quarter losses were $291 million, or $0.13 a share, up from $194 million, or $0.09 a share. The recession also continues to lower demand for Motorola’s other products, such as set-top cable boxes and wireless infrastructure equipment. Sales fell 27.9%, to $5.4 billion from $7.4 billion. Because of the weaker sales, the company is cutting 5,400 jobs (or 8% of its workforce) and closing plants. These moves should save it $219 million in the rest of 2009. Beyond that, Motorola expects to save $313 million a year. However, the company’s cellphone sales will probably remain weak until it launches its new smartphone in the fourth quarter. Motorola is a hold.

WINDSTREAM CORP. $8.31 (New York symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 436.8 million; Market cap: $3.6 billion; Price-to-sales ratio: 1.2; WSSF Rating: Average) provides local telephone and other services to 3 million customers in 16 states. Most of its customers are in rural areas. The company has no wireless operations, so it relies on high-speed Internet services to fuel its growth. Its 1 million high-speed customers represent just 34% of its lines in service, so there’s plenty of room to expand. Windstream uses bundles of local telephone, high-speed Internet and satellite TV services to hang on to customers in the face of strong competition from cable companies. On May 11, 2009, the company agreed to buy D&E Communications, Inc. (Nasdaq symbol DECC), which has about 200,000 phone and Internet customers in central Pennsylvania. The purchase will double the size of Windstream’s Pennsylvania operations, and add $148 million to its annual revenue. The deal should close in the second half of 2009....

AMEREN CORP. $23 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 213.6 million; Market cap: $4.9 billion; Price-to-sales ratio: 0.6; WSSF Rating: Average) provides electricity and natural gas to 3.4 million customers in Illinois and Missouri. Ameren has faced a number of challenges recently. The recession has driven down electricity demand, and a warmer-than-usual winter hurt natural-gas sales. As well, a severe ice storm in January forced Ameren’s biggest power customer, an aluminum smelter in Missouri, to scale back its operations. As a result, Ameren’s earnings in the first quarter of 2009 fell 14.9%, to $114 million, or $0.54 a share. The company earned $134 million, or $0.64 a share, a year earlier. These figures exclude one-time items, including losses of $0.14 a share on futures contracts that Ameren uses to lock in its fuel costs. Revenue fell 7.9%, to $1.9 billion from $2.1 billion....

ALLIANT ENERGY CORP. $23 (New York symbol LNT; Income Portfolio, Utilities sector; Shares outstanding: 110.6 million; Market cap: $2.5 billion; Price-to-sales ratio: 0.7; WSSF Rating: Average) provides electricity and natural gas to 1.4 million customers in Wisconsin, Iowa, Minnesota and Illinois. Like Ameren, the recession and warmer-than-usual winter weather hurt Alliant’s first-quarter earnings. In the three months ended March 31, 2009, earnings rose 6.6% to $72.6 million, or $0.66 a share, from $68.1 million, or $0.62 a share, a year earlier. However, if you disregard a one-time income-tax gain, the company’s earnings fell to $0.30 a share. Revenue fell 4.2%, to $949.9 million from $992 million. Revenue at its regulated power plants rose 7%, but that was more than offset by a 14% drop in gas revenue. In light of the weak economy, Alliant will probably wait until next year before it asks power regulators for permission to raise rates. Meanwhile, it will look for ways to lower its costs. For instance, in March the company decided to cancel a new coal-fired power plant in Iowa. This should save it $1.2 billion over the next three years. Cancelling this plant also eliminates the need for Alliant to issue new shares, which could dilute the holdings of its existing shareholders....

Ameren and Alliant have seen their share prices fall recently, mainly because of bad weather and the recession. However, their earnings should improve as the economy recovers. It’s also likely that utility regulators will let them raise rates next year. This should let them keep paying above-average dividends. AMEREN CORP. $23 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 213.6 million; Market cap: $4.9 billion; Price-to-sales ratio: 0.6; WSSF Rating: Average) provides electricity and natural gas to 3.4 million customers in Illinois and Missouri. Ameren has faced a number of challenges recently. The recession has driven down electricity demand, and a warmer-than-usual winter hurt natural-gas sales. As well, a severe ice storm in January forced Ameren’s biggest power customer, an aluminum smelter in Missouri, to scale back its operations....

THE BOEING CO. $44 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 726.2 million; Market cap: $32 billion; Price-to-sales ratio: 0.5; WSSF Rating: Above Average) has finished initial testing of the new Rolls Royce engine that will power its 787 Dreamliner jet. The plane should begin test flights before the end of June. Boeing plans to start deliveries in the first quarter of next year. Production delays caused customers to cancel 32 orders for the 787 in the first quarter, but Boeing still has 886 orders with a value of $133 billion. As well, the new plane is 20% more fuel efficient than current models. This should appeal to cost-conscious airlines. Boeing is a buy.

LIMITED BRANDS INC. $13 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 321 million; Market cap: $4.2 billion; Price-to-sales ratio: 0.5; WSSF Rating: Average) earned $0.01 a share in its first fiscal quarter, which ended May 2, 2009. That was better than analysts expectations of a loss of $0.04 a share. In the year-earlier quarter, the clothing retailer earned $0.11 a share. That figure excludes a gain on the sale of its stake in a joint venture and a writedown of its investment in another joint venture. Sales fell 10.4%, to $1.7 billion from $1.9 billion. Overall same-store sales fell 7%, consisting of a 10% drop at the Victoria’s Secret and La Senza lingerie chains and a 3% drop at its Bath & Body Works personal-care products stores. The company continues to lower its costs. These measures, which include cutting its head office staff by 10%, freezing salaries and opening fewer stores, should improve its profitability when sales rebound. Limited Brands is a buy....