stock split
When a company splits its shares, it is simply cutting itself up into a different number of pieces, without changing its fundamental value. It simply wants its stock to trade in a price-per-share range that seems reasonable to investors. Mechanics of a split: If a stock’s price rises much beyond $50 a share in Canada (or $100 a share in the U.S.), some investors may shun it, since it seems expensive. The company’s management may then declare a stock split of, say, two-for-one. This turns one “old” share into two “new” shares. If you owned 100 shares of a $60 stock, you now own 200 shares of a $30 stock. You don’t need to take any action. After a conventional stock split, good news often follows. Companies mainly split their shares when they want to draw attention to themselves — because they expect earnings to rise faster than normal, say. At such times, they may also raise their dividends. However, sometimes companies get overly optimistic. Their profits come in far below expectations, and they can’t keep paying the new, higher dividend. So a stock split can be good or bad, depending on the details....
Ebix Inc., $23.58, symbol EBIX on Nasdaq (Shares outstanding: 35 million; Market cap: $823.9 million), sells software and e-commerce services to the insurance industry. These products help Ebix’s clients automate several routine functions, such as preparing quotes and settling claims. Based in Atlanta, Ebix sells its products in over 50 countries. International markets account for 27% of its revenue. The company has grown rapidly through acquisitions over the past few years. Since the beginning of 2008, it has spent over $127.2 million buying smaller software firms....
For many investors, every investment involves a two-part decision. First they decide what to buy, then they decide what price they’ll pay. Most are looking for bargain stocks, and want to buy, say, 5% to 10% below current prices. These investors often explain that they are simply looking to buy bargain stocks the way a smart consumer buys a car. But they overlook a key difference. Car prices do vary and some buyers do pay less than others, because they have better bargaining skills and more time to spend shopping around. But the stock market is more “efficient” than the car market, as an economist would put it. To get a lower price on a stock, you have to wait for its price to come down.
Underbidding on bargain stocks can filter out your best picks — and fill your portfolio with losers
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GENERAL MILLS INC. $35 (New York symbol GIS; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 651.2 million; Market cap: $22.8 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.2%; WSSF Rating: Above Average) is the second-largest maker of breakfast cereals in the U.S., after Kellogg. Its major brands include Cheerios, Wheaties and Total. The company also makes Progresso soups, Betty Crocker baking mixes, Green Giant canned vegetables and Yoplait yogurt. Over the past few years, General Mills has been working on increasing its international sales. It now gets roughly 20% of its sales from overseas. The company is also successfully developing healthier products, such as low-salt soups. It typically spends around 2% of its sales on developing new products.
Strong history of rising sales, earnings
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MOTOROLA INC., $6.76, New York symbol MOT, has announced some of the details of its planned breakup into two companies. The company aims to complete the split in the first quarter of 2011. Motorola Mobility Inc. will make mobile phones and home-entertainment equipment, such as set-top boxes for receiving cable and satellite TV signals. The other company, Motorola Solutions Inc., will make communication equipment for large corporate clients, including telephone companies. Each of these businesses accounted for roughly half of Motorola’s 2009 revenue. The breakup makes sense for Motorola. That’s because its two main businesses have little overlap: The mobility business focuses on individual consumers, and the solutions business sells its products to large corporations. It also provides companies with financing for their purchases....
Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you fundamental stock market investing tips. Each Investor Toolkit update gives you a specific tip and shows you how you can put it into practice right away. Today’s tip: “The value of a company as an investment depends on its business, not on the stock price or number of shares outstanding.” When a company splits its shares, it is simply cutting itself up into a different number of pieces, without changing its fundamental value. It simply wants its stock to trade in a price-per-share range that seems reasonable to investors....
RUGGEDCOM INC., $15.37, symbol RCM on Toronto, makes computer-networking equipment that is used in harsh environments. Its products are designed to reliably operate under high levels of electromagnetic interference. They can also cope with wide variations in temperature and humidity, as well as vibration and exposure to dust. They also work while exposed to such things as corrosive gases and water. In the three months ended March 31, 2010, RuggedCom’s sales rose 11.3%, to $19.4 million from $17.4 million a year earlier. The gain mainly resulted from higher sales to transportation and industrial clients. As well, the current revenue figure included a contribution from WiNetworks, which RuggedCom bought in September 2009. WiNetworks designs WiMAX equipment, which can provide wireless broadband access at a distance of up to 50 kilometres from fixed stations, and five to 15 kilometres from mobile stations. In contrast, most of today’s Wi-Fi networks are limited to only 30 to 100 metres....
ALIMENTATION COUCHE-TARD INC., $18.41, symbol ATD.B on Toronto, has more than 3,500 convenience stores in the U.S., and is the largest convenience-store operator in Canada, with over 2,000 outlets. The Canadian stores operate under the Couche-Tard and Mac’s banners, while the U.S. stores mainly use the Circle K brand. Couche-Tard sells fuel at 70% of its stores. The stock fell 8% this week after the company reported lower-than-expected earnings. In its third quarter, which ended January 31, 2010, Couche-Tard’s earnings fell 22.9%, to $54.8 million, or $0.29 a share. A year earlier, it earned $71.1 million, or $0.36 a share. (All figures except share price in U.S. dollars.) The latest quarter’s earnings fell well short of the consensus earnings estimate of $0.38 a share. Earnings mainly fell due to lower profit margins on gasoline sales at the company’s U.S. outlets....
COMPUTER MODELLING GROUP $6.80 (Toronto symbol CMG; SI Rating: Speculative) (403- 531-1300; www.cmgl.ca; Shares outstanding: 17.3 million; Market cap: $101.4 million) is a computer software technology and consulting company specializing in the oil and gas industry. Its software provides engineers with oil and gas reservoir simulation, and three-dimensional visualization and animation. The company has over 330 clients worldwide in 40 countries. Computer Modelling’s revenues in the three months ended September 30, 2008 rose 57.1%, to $9.6 million from $6.1 million. Earnings more than doubled to $3 million from $1.4 million a year earlier. Earnings per share rose 88.9%, to $0.17 from $0.09 on more shares outstanding. Cash flow per share doubled, to $0.20 from $0.10. Strong oil and gas industry exploration spending continues to boost Computer Modelling’s revenues and earnings. The company holds cash of $25.2 million or $1.46 a share and has no debt. It spent $2 million, or a high 20.6% of revenues, on research and development in the latest quarter....
RUSSEL METALS, $30.09, symbol RUS on Toronto, rose over 9% this week after it reported higher revenue and earnings. In the three months ended June 30, 2008, its profits nearly tripled to $78.8 million or $1.25 a share from $29.3 million or $0.47 a share a year earlier. Earnings exceeded consensus expectations of $1.16 a share. Revenues rose 31.2%, to $856.3 million from $652.8 million. In the latest quarter, higher steel prices and improved same-store volumes boosted sales at its metals service centers by 34%. The metals service centers account for 58% of Russel’s revenues and 60% of its profits. Strong U.S. energy operations and growing Alberta oil sands business helped sales of energy tubular products (28% of total sales), which rose 41%. The company will pay a special dividend of $0.05 a share on September 15, 2008. That’s in addition to its regular $0.45 quarterly dividend, which implies an annual yield of 6.0%....