Big moves up and down in share prices need to be supported by increasing volume or the move will rarely be sustainable. One way to determine strong trends and get on board long upward or downward moves is to look at stocks that are trading a large amount of volume early on in the day, when compared with their average volume. This will help us set the best moves apart from the rest. (For background reading, see Volume Rate Of Change.)
Here are five stocks that were trading on very large volume by noon today. Let's take a closer look at one that has seen a large share price change as well.
|Company||Shares Traded*||% of Average Volume
|Alexander & Baldwin
|PSS World Medical
|Pediatrix Medical Group
|* Data as of 9:48 am EST October 1, 2008|
Piping Down to Oil
Nestled in between France and Germany in Western Europe is Luxembourg-based Tenaris SA. Controlled by the Argentine conglomerate Techint, Tenaris is the world's leading producer of seamless steel tubes for the oil industry. History has proved that as oil prices rise and fall, Tenaris stock tends to follow suit. The unusual volume seen in Tenaris moved in response the proposed Wall Street bailout plan and possibly in anticipation of its upcoming earnings release. (To learn more about cyclical sectors, read Cyclical Versus Non-Cyclical Stocks.)
Tenaris manufactures and sells steel pipes used for offshore and deepwater oil drilling rigs. It also manufactures sucker rods used in oil extraction activities. The company has operations in virtually every region of the globe. Tenaris announced earlier this month plans to invest $1.6 billion in a new mill in Veracruz, Mexico. The mill is expected to begin operations in 2011.
Tenaris supplied seamless steel pipes for the Independence Hub platform located in the Gulf of Mexico. The Independence Hub facilitates the development of multiple ultra-deepwater natural gas and condensate discoveries in the Gulf. According to Tenaris, the Independence Project is one of the world's deepest platform and deepest flowline installations in the world.
Steadily increasing global demand sent oil prices higher during the first half of the year. Likewise oil and gas drilling in the U.S. and around the globe increased. According to Baker Hughes, active rig activity increased 5% during the first six months of the year compared to the same period a year ago. The increase in worldwide drilling activity translates into greater demand for Tenaris seamless and welded pipe products.
Net sales of Tenaris tubular products increased 17% to $2.6 billion for the second quarter of 2008 driven by a 42% increases in sales in North America. Despite a retreat in oil prices during the second half of the year, Tenaris expects continued growth from drilling activity in Canada and demand for pipeline projects in South America. The stock has an attractive PEG ratio below 1 at 0.93 suggesting strong future earnings growth over the next five years. Competitor U.S. Steel (NYSE:X) has an even lower PEG ratio of 0.34 and a much lower price-to-sales ratio of 0.44 versus 2.02 for Tenaris. (To learn more about the PEG ratio, check out Investment Valuation Ratios: Price/Earnings To Growth Ratio.)
Reaction to the Bailout
When Congress did not approve the proposed $700 billion bailout plan on Monday, Tenaris SA made a huge move to the downside falling -17.81% while the broad SPRDs S&P 500 Index ETF (AMEX:SPY) fell -7.84% and the United States Oil ETF (AMEX:USO) retreated -10.58% in comparison. As the U.S. market absorbed the fears of the complicated U.S. bailout, the USO fund rebounded up 6.38% while Tenaris rose 8.02%.
The unusual volume is likely to continue since so many factors including geopolitical, environmental and social behavior effect the demand for oil and by extension demand for Tenaris' products. For investors this means that an investment in Tenaris is essentially a play on the continued future demand for fossil fuels. This will always be a difficult decision to make.
For further reading on oil demand, be sure to check out our Oil And Gas Industry Primer.