price to sales ratio

CHEVRON CORP. $64 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2 billion; Market cap: $128 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) is the second-largest integrated oil company in the United States, after ExxonMobil. Oil production supplied 86% of its earnings in 2008; the remaining 14% came from its refineries and retail gas stations. In response to weaker energy prices, Chevron aims to conserve cash by temporarily suspending its sharebuyback program. (In 2008, it repurchased $8 billion of its stock.) It now holds $9.6 billion, or $4.70 a share, in cash, and its total debt of $8.9 billion is a low 7% of its market cap. In 2008, Chevron’s earnings rose 28.1%, to $23.9 billion from $18.7 billion in 2007. Earnings per share rose 33.1%, to $11.67 from $8.77 on fewer shares outstanding. (Chevron’s 2008 earnings included a $600-million gain on the swap of some properties.) Revenue rose 23.6%, to $273 billion from $220.9 billion. Higher oil prices in 2008 offset a 3.4% drop in overall production, mainly due to the disruption caused by hurricanes at its offshore platforms in the Gulf of Mexico....

This year, global oil consumption will probably fall for the first time since the early 1980s. We feel now is a good time to buy well-established oil companies that can take advantage of low oil prices. The three listed below are good examples; all have low debt and plenty of cash, which puts them in a good position to buy new properties or smaller producers, possibly at bargain prices. CHEVRON CORP. $64 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2 billion; Market cap: $128 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) is the second-largest integrated oil company in the United States, after ExxonMobil. Oil production supplied 86% of its earnings in 2008; the remaining 14% came from its refineries and retail gas stations. In response to weaker energy prices, Chevron aims to conserve cash by temporarily suspending its share buyback program. (In 2008, it repurchased $8 billion of its stock.) It now holds $9.6 billion, or $4.70 a share, in cash, and its total debt of $8.9 billion is a low 7% of its market cap....

AUTODESK INC. $14 (Nasdaq symbol ADSK; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 226.3 million; Market cap: $3.2 billion; Price-to-sales ratio: 1.4; WSSF Rating: Average) makes computer-assisted design software that lets engineers and architects visualize, simulate and analyze the performance of their products early in the design process. This saves time and money, and improves the quality of the finished product. Slowing construction activity has hurt demand for Autodesk’s products. In response, the company plans to cut 10% of its workforce and consolidate some of its facilities. Severance and related expenses will cost it $65 million to $75 million. These cost-cutting plans should lower its annual expenses by $130 million. To put these figures in perspective, Autodesk earned $0.45 a share, for a total $104.5 million, in its third fiscal quarter, ended October 31, 2008, up 28.6% from $0.35 a share, or $84.8 million a year earlier. If you disregard a number of non-recurring expenses and gains, earnings per share rose 14.3%, to $0.56 from $0.49. Revenue improved 12.8%, to $607.1 million from $538.4 million. These gains were largely the result of favourable foreign exchange rates and strong sales in emerging markets. International sales account for about 80% of Autodesk’s revenue....

SYMANTEC CORP. $14 (Nasdaq symbol SYMC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 821 million; Market cap: $11.5 billion; Price-to-sales ratio: 1.9; WSSF Rating: Average) makes software that protects computers from viruses and intruders. The company is best known for its top-selling Norton Anti-Virus program. Products aimed at individual computer users supply 30% of Symantec’s revenue, and half of its earnings. Symantec mainly sells its products in retail stores and through online downloads. It also encourages users to renew their licences every year. Selling anti-virus products on a subscription basis gives Symantec predictable revenue streams and cuts its risk. Symantec continues to increase its focus on selling security software and other services to corporate customers, mostly through companies it has acquired. Symantec’s biggest acquisition to date was its $13.5-billion, all-stock purchase of data-storage specialist Veritas in July 2005....

The market downturn has been particularly hard on cyclical technology companies like Symantec and Autodesk. However, both are world leaders in their niches, which gives them an advantage over competitors; many users prefer to avoid having to learn new software. As well, both companies continue to heavily invest in research. This hurts their earnings, but the resulting new products will help them thrive once the economy starts growing again. Symantec trades at a slightly lower p/e ratio than Autodesk, mainly because of its heavier debt burden. However, both are well positioned for earnings growth when the economy improves. SYMANTEC CORP. $14 (Nasdaq symbol SYMC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 821 million; Market cap: $11.5 billion; Price-to-sales ratio: 1.9; WSSF Rating: Average) makes software that protects computers from viruses and intruders....

CANADIAN NATIONAL RAILWAY CO. $44 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 464.9 million; Market cap: $20.5 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) operates the largest freight-rail network in Canada, and serves 16 U.S. states. It hauls consumer and industrial goods, which accounted for 21% of its 2008 revenue, forest products (19%), grain and fertilizers (18%), petroleum products (18%), metals and minerals (12%), coal (6%) and autos (6%). CN’s revenue rose from $6.5 billion in 2004 to $8.5 billion in 2008, partly due to acquisitions. Earnings grew from $1.3 billion, or 2.17 a share, in 2004 to $1.8 billion, or $3.40 a share, in 2006. CN’s earnings slipped to $1.7 billion, or $3.40 a share, in 2007. U.S. and cross-border traffic accounts for about half of CN’s revenue, and the higher Canadian dollar hurt the contribution from its American businesses. But thanks partly to a lower Canadian dollar, 2008 earnings improved to $1.8 billion, or $3.71 a share.

Most efficient in North America

Despite higher fuel costs in 2008, CN is still one of the most efficient railways in North America. In 2008, its operating ratio worsened to 65.9% from 63.6% in 2007. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.) Falling oil prices should lower CN’s operating costs in 2009, and new investments in locomotives and rail yards should also help improve its overall efficiency....

TIM HORTONS INC. $29 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 181.6 million; Market cap: $5.3 billion; Price-to-sales ratio: 2.9; SI Rating: Average) aims to spur traffic at its coffee-and-donut stores in the United States with a new alliance with the Cold Stone Creamery chain of upscale ice-cream parlours. Tim Hortons will start selling Cold Stone Creamery ice cream products at 50 of its 500 U.S. outlets. In return, Cold Stone Creamery will sell Tim Hortons’ products at 50 of its 1,450 locations. Tim Hortons gets most of its traffic early in the day, while Cold Stone Creamery’s sales peak in the evening, so this cross-selling agreement should help both chains. Tim Hortons is a buy.

ARBOR MEMORIAL SERVICES INC. $19 (Toronto symbol ABO.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 10.7 million; Market cap: $203.3 million; Price-to-sales ratio: 0.9; SI Rating: Average) owns 41 cemeteries, 26 crematoria, four reception centres for memorial services and 87 funeral homes in eight provinces. In its fiscal year ended October 26, 2008, earnings rose 10.0%, to $19.7 million, or $1.84 a share, from $17.9 million, or $1.69 a share, in the prior year. If you disregard unusual items, earnings would have grown 2.7%. Revenue increased 3.2%, to $236.6 million from $229.3 million. Arbor Memorial Services is a buy. IGM FINANCIAL INC. $34 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 262.4 million; Market cap: $8.9 billion; Price-to-sales ratio: 3.1; SI Rating: Above Average) reported that its assets under management fell 16.8%, to $97.8 billion as of January 31, 2009 from $117.6 billion a year earlier. The drop was largely caused by falling stock markets, plus $27.3 million in net redemptions in January 2009. It should be noted that IGM’s decline was better than the roughly 27% drop in assets under management for the entire Canadian mutual fund industry....

INDIGO BOOKS & MUSIC INC. $12 (Toronto symbol IDG; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 24.5 million; Market cap: $294 million; Price-to-sales ratio: 0.3; SI Rating: Extra Risk) aims to take advantage of the growing popularity of the Apple iPhone and other smart phones, as well as electronic book-reading devices. It will soon launch shortcovers.com, a new web site that will let users download free and paid electronic content from books, newspapers, magazines and blogs. The electronic book market is small compared to Indigo’s traditional book business. But Indigo hopes this new service will become as successful as Amazon- .com’s Kindle e-book reader, which accounts for over 10% of Amazon’s sales. Indigo is a buy.

GENNUM CORP. $4.40 (Toronto symbol GND; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.6 million; Market cap: $156.6 million; Price-to-sales ratio: 1.0; SI Rating: Above Average) makes equipment that stores, manipulates and transfers video signals. Foreign markets account for 85% of its total sales. Gennum spends nearly 30% of its revenue on research, which helps it maintain its high share of this niche market. Gennum has $48.7 million, or $1.37 a share, in cash, and just $2 million in debt (all amounts in U.S. dollars except share price and market cap), so it can afford these research costs. In the year ended November 30, 2008, earnings rose 6.9%, to $0.62 a share, for a total of $22.0 million, from $0.58 a share ($20.9 million) a year earlier. These figures exclude unusual items. Sales grew 24.7%, to $126.9 million from $101.8 million....