price to sales ratio

Newell and Tupperware have fallen sharply in the past few months on fears that weaker consumer confidence will hurt their sales and earnings. However, they own some of the world’s best-known brands, and this is helping them expand overseas. They both use oil to make their products, so they also stand to gain from falling oil prices. This should let them continue to pay above-average dividends. NEWELL RUBBERMAID INC. $9.21 (New York symbol NWL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 277.2 million; Market cap: $2.6 billion; Price-to-sales ratio: 0.3; WSSF Rating: Average) makes a wide variety of household products, such as plastic storage bins, tools and pens. International markets account for 30% of its revenue. The company’s total term debt was $2.9 billion as of December 31, 2008, which is a high 110% of its market cap. Of that total, $752.7 million is due within one year. Newell generated $546.6 million in cash flow in 2008, so it should have little trouble meeting its obligations. The company also held cash of $275.4 million, or $1.00 a share. Newell aims to conserve cash by accelerating its current restructuring plan, which includes temporarily shutting down some of its plants to reduce inventory levels....

FAIR ISAAC CORP. $16 (New York symbol FIC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 48.5 million; Market cap: $776 million; Price-to-sales ratio: 1.0; WSSF Rating: Average) provides products and services that help businesses around the world make better decisions on customer creditworthiness. Its main business is its FICO software, which lets creditors use information about a customer to calculate a credit score. In the fiscal year ended September 30, 2008, Fair Isaac’s revenue fell 5.0%, to $744.8 million from $784.2 million. Sales growth has slowed along with increasing problems in credit markets. Earnings per share fell by 15.5%, to $1.64 from $1.94. Fair Isaac now aims to expand the use of its FICO score in the face of growing competition; new deals with banks and credit unions will allow them to give free FICO scores to their customers. Helping borrowers improve their credit scores should also lead to fewer loan losses for Fair Isaac’s clients....

BROADRIDGE FINANCIAL SOLUTIONS INC. $14 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 141.4 million; Market cap: $2.0 billion; Price-to-sales ratio: 1.0; WSSF Rating: Extra Risk) offers services to the investment industry in three main areas: investor communications, securities processing, and transaction clearing. Broadridge mails and processes 70% of all proxy votes. Broadridge’s revenue in its first fiscal quarter, ended September 30, 2008, rose 4.7%, to $472.4 million from $451.2 million a year earlier. It typically sells its services under long-term contracts that provide it with steady revenue streams. This cuts its risk. However, earnings fell 1.1%, to $35.6 million from $36.0 million. The drop was mainly due to the timing of extra expenses stemming from investments in technology and new products. Earnings per share fell 3.8%, to $0.25 from $0.26 on more shares outstanding. The company will probably earn $1.48 a share in fiscal 2009, and the stock trades at 9.5 times that estimate. The $0.28 dividend yields 2.0%....

The credit crisis has weighed heavily on Broadridge and Fair Isaac, which provide specialized services to financial institutions. However, these services help their clients cut costs and comply with changing regulations. We still see both companies as buys for long-term gains. BROADRIDGE FINANCIAL SOLUTIONS INC. $14 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 141.4 million; Market cap: $2.0 billion; Price-to-sales ratio: 1.0; WSSF Rating: Extra Risk) offers services to the investment industry in three main areas: investor communications, securities processing, and transaction clearing. Broadridge mails and processes 70% of all proxy votes. Broadridge’s revenue in its first fiscal quarter, ended September 30, 2008, rose 4.7%, to $472.4 million from $451.2 million a year earlier. It typically sells its services under long-term contracts that provide it with steady revenue streams. This cuts its risk. However, earnings fell 1.1%, to $35.6 million from $36.0 million. The drop was mainly due to the timing of extra expenses stemming from investments in technology and new products. Earnings per share fell 3.8%, to $0.25 from $0.26 on more shares outstanding....

LIZ CLAIBORNE INC. $2.84 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 94.7 million; Market cap: $268.9 million; Price-to-sales ratio: 0.1; WSSF Rating: Extra Risk) designs and sells clothing and accessories for men and women under about 20 different brands, including Juicy Couture, Kate Spade, Lucky Brand and Mexx. It mainly sells its products through department stores, and its own 600-store chain. The company expects that it lost up to $0.15 a share in the fourth quarter of 2008, because of heavy discounting by department stores. It had earlier forecast earnings of between $0.19 and $0.24 a share. Falling prices at department stores also forced Liz Claiborne to cut prices at its own stores to stay competitive. Liz Claiborne continues to make progress with its restructuring, including selling or discontinuing lessprofitable brands. It has also hired prominent fashion designer Isaac Mizrahi to overhaul its main “Liz Claiborne” line of women’s sportswear and accessories....

JONES APPAREL GROUP INC. $4.17 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 83.4 million; Market cap: $347.8 million; Price-to-sales ratio: 0.1; WSSF Rating: Average) designs clothing, accessories and footwear for men and women. Major brands include Jones New York, Gloria Vanderbilt and Nine West. Department stores account for the bulk of Jones’s sales. The company also operates around 1,000 of its own retail stores and outlets. Jones continues to cut costs and lower inventories to deal with the slumping economy. It feels these moves will save it $33 million a year. The company also plans to conserve cash by cutting capital spending by 35.7%, to $45 million in 2009 from $70 million in 2008. As well, it has cut its quarterly dividend by 64.3%, to $0.05 a share from $0.14. The new annual rate of $0.20 yields 4.8%. The lower dividend should save it $30 million a year....

LIMITED BRANDS INC. $9.15 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 322.1 million; Market cap: $2.9 billion; Price-to-sales ratio: 0.4; WSSF Rating: Average) operates two main retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (soaps and bath oils). It also operates the La Senza (lingerie) chain in Canada and 30 other countries. In December 2008, Limited Brands’ overall same-store sales fell 10%. The slowing economy forced the company to lower prices to lure customers and clear out older inventory. Same-store sales fell by 9% at Victoria’s Secret, 10% at La Senza and 11% at Bath & Body Works. Its successful restructuring over the past two years will continue to help Limited Brands cope with the slowdown. As part of this plan, it sold 75% of its Express and Limited casual clothing chains, which generate lower profits than its other operations. Workforce reductions, lower inventory levels and other measures have also saved it $150 million a year....

Slowing retail sales and weak consumer confidence have hurt most consumer stocks. Clothing is largely a discretionary purchase, so the downturn has been particularly hard on these three apparel-related companies. Based on the steep drop in their stock prices, it appears that investors feel they will not survive. We have a more optimistic view. All three are lowering their operating costs and shedding unprofitable businesses. That puts them in a good position to expand their earnings once the economy turns around. Their leading brands will also give them an advantage as conditions improve. All three should reward patient investors, but only two are buys right now....

MTS SYSTEMS CORP. $27 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 16.9 million; Market cap: $456.3 million; Price-to-sales ratio: 1.0; WSSF Rating: Average) makes equipment and software that manufacturers use to test the mechanical behaviour of materials, machines and structures. This helps them reduce errors and costs. Testing systems account for 80% of MTS’s revenue. The remaining 20% comes from making sensors that improve the performance of automated industrial machinery.

Small company flies under the radar

As part of our three-pronged approach to investing, we advise you to downplay stocks that are in the broker/media limelight. (The other two prongs are to focus on well-established companies and to spread your money across the five main economic sectors.) MTS operates in a narrow, highly technical field, so it attracts little attention from analysts. MTS has a long history of increasing its revenue and earnings. Revenue grew 39.4%, from $330.3 million in 2004 to $460.5 million in 2008 (MTS’s fiscal year ends September 30). Earnings rose 77.5%, from $26.5 million in 2004 to $47.1 million in 2008. MTS is an aggressive buyer of its own stock. As a result, earnings per share rose 116.1%, from $1.24 in 2004 to $2.68 in 2008....

MICROSOFT CORP. $18 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.9 billion; Market cap: $160.2 billion; Price-to-sales ratio: 2.4; WSSF Rating: Above Average) plans to cut 5,000 jobs, or 6% of its workforce, in an effort to lower its annual expenses by $1.5 billion. The cuts are largely due to slowing sales of computers preloaded with Microsoft’s Windows and Office programs. In the three months ended December 31, 2008, earnings fell 11.3%, to $4.1 billion from $4.7 billion a year earlier. Earnings per share fell 6.0%, to $0.47 from $0.50, on fewer shares outstanding. Revenue rose 1.6%, to $16.6 billion from $16.4 billion. Microsoft has no debt, and holds $20.7 billion, or $2.33 a share, in cash. This should let it maintain its high research spending, which accounts for 14% its revenue, and develop new products that will cut its reliance on Windows and Office, which supply about 60% of its revenue. Microsoft is a buy.