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Tickers in this Article: AUQ, TNH, MOS, PKG, AVD, IP, AEM
The market is currently down, with the Nasdaq decreasing 0.1%, the S&P 500 down 0.1% and the Dow slipping 0.2%. The basic materials sector is the category of stocks that accounts for companies involved with the discovery, development and processing of raw materials. This sector includes the mining and refining of metals, chemical producers and forestry products. The basic materials sector is sensitive to changes in the business cycle. Because the sector supplies materials for construction, it depends on a strong economy. This sector is also sensitive to supply and demand fluctuations because the price of raw materials, such as gold or other metals, is largely demand driven.

The Basic Materials sector (XLB) is up 0.5% on a bad day for the market overall. The biggest movers in the sector are currently:
CompanyMarket CapPercentage Change
AuRico Gold Inc (NYSE:AUQ).13 billion-15.8%
Terra Nitrogen Company, L.P. (NYSE:TNH).98 billion+4.4%
Mosaic (NYSE:MOS).56 billion+4.4%
Packaging Corp Of America (NYSE:PKG).85 billion+3.9%
American Vanguard Corp. (NYSE:AVD)9.2 million-3.1%
International Paper (NYSE:IP).43 billion+3%
Agnico-Eagle Mines Limited (USA) (NYSE:AEM).36 billion-2.7%
Broker Summary: TD Ameritrade Thinkorswim

Shares of AuRico Gold (NYSE:AUQ) are currently trading at $6.35, a steep decline of 15.8%. With 8.2 million shares changing hands so far today, the company's volume is 3.9 times the average volume over the last three months. A stock's volume conveys how excited investors are about it. Profit-margin ratios can give investors deeper insight into management efficiency than earnings alone can provide. Gross profit margin, operating profit margin and net margin are commonly used margins. AUQ has a gross profit margin of 65%. The operating margin ratio can also be useful for tracking an individual company's performance across time, where an increasing ratio is good and a declining ratio may provide cause for concern that a company's business model is weakening. AUQ has an operating profit margin of 36.3%. Net profit margin examines how effectively a company is managed and how profitable it is by looking at how much of each dollar in revenues ultimately hits the company's bottom line. The company has a net profit margin of 37.5%.

Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. To a large degree, the debt-equity (D/E) ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. AUQ has a debt-equity ratio of 2%, which is on the low side. A low D/E ratio may be a sign that the company is not taking advantage of leverage to increase its profits. This easy-to-calculate ratio provides a general indication of a company's equity-liability relationship and is helpful to investors looking for a quick take on a company's leverage.

After rising 4.4%, Terra Nitrogen Company (NYSE:TNH) is currently trading at a share price of $224.74. So far today, 48,625 shares have changed hands. Volume is an important indicator in technical analysis as it is used to measure the worth of a market move. If the markets have made strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move. Calculating the profit margin is a great way to gain insight into aspects of how well a company generates and retains money. Instead of measuring how much managers earn from assets, equity or invested capital, profit-margin ratios measure how far a company stretches its total revenue or total sales. TNH's gross profit margin is 68.5%. TNH's operating margin of 63.1% and net margin of 63.9% are low relative to its gross margin.

Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. P/E ratio for TNH is 13.2. To determine the P/E ratio, an investor divides the market price of the stock by the earnings-per-share (EPS) of the stock. SEE: How To Find P/E And PEG Ratios

Mosaic (NYSE:MOS) is currently trading at $57.78 per share, a 4.4% increase. The company's volume is currently five million shares for the day, 1.2 times the current daily average. Volume is an important indicator because it indicates how significant a price shift is. Margin ratios highlight companies that are worth further examination. The gross profit margin for MOS is 33.5%. Operating margin for MOS is 18.9% and net margin is 18.6%, both low relative to its gross margin.

While investment valuation ratios are useful tools in estimating the attractiveness of an investment, remember that it is important to look at a company's historical performance and compare the company ratios with its competitors and industry overall. The capitalization ratio measures the debt component of the capital structure, or capitalization of a company (i.e., the sum of long-term debt liabilities and shareholder equity) to support operations and growth. MOS' capitalization ratio is 7.9%, which is relatively low. Low leverage is a significant balance sheet strength, a sign of a less risky investment. This ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into the use of leverage by a company.

Packaging Corp Of (NYSE:PKG) has risen 3.9% and is currently trading at $30.18 per share. The company's volume is currently 700,500 shares. This is greater than yesterday's volume of 633,253 shares. As a stock moves up or down, it is important to pay attention to the trading volume. This indicates the level of interest: the higher the volume, the more the interest. Profit-margin ratios help us to keep score, as measured over time, of management's ability to generate profits and manage costs and expenses. There are three key profit-margin ratios: gross profit margin, operating profit margin and net profit margin. PKG's gross profit margin is 27.1%. Operating margin is determined by taking operating income (income minus variable expenses) and dividing it by sales. PKG has an operating profit margin of -25.2%. This shows that the company reported a net operating loss in the most recent quarter. Comparing net profit margins for companies with similar business models or in similar industries can yield valuable information as to which business is actually performing better. Relative to its gross profit margin, the company has a low net profit margin of 5.2%. Investors in companies with low profit margins need to be concerned that if sales drop, profits will fall sharply as well.

Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. When used consistently and uniformly, the price/earnings to growth (PEG) ratio is an essential tool that adds dimension to the price/earnings ratio, allows comparisons across diverse industries and is always on the lookout for value. PKG has a PEG ratio of 2.25, which is consistent with the industry average. While P/E ratios are important indicators of market value, a high P/E in and of itself is not bad because it may indicate a company whose earnings are growing very rapidly, so many investors look at the PEG ratio in order to get an idea of whether or not a particular P/E ratio is justified by underlying earnings growth.

Currently trading at $27.46 per share, American (NYSE:AVD) has fallen 3.1%. So far today, the company's volume is 107,062 shares, 0.5 times the current three-month average. If a stock price makes a big move up or down, volume lets us know the significance of that move. There are many tools investors can use to evaluate a stock, including margins. Margins, quite simply, are earnings expressed as a ratio, or a percentage of sales, and this allows investors to compare the profitability of different companies, while net earnings, which are presented as an absolute number, cannot. AVD has a gross profit margin of 45.8%. The operating profit margin is a rough measure of the operating leverage a company can achieve in the conduct of the operational part of its business. Operating profit margin for AVD is 16.5%. A high net profit margin indicates a highly profitable company, and a low profit margin indicates the opposite. Net margin is 8%.

A company's value as an investment is more easily estimated using valuation ratios such as the price to earnings (P/E) ratio, the price to earnings growth (PEG) ratio, the price to sales (P/S) ratio, the price to book (P/B) ratio, and the dividend yield. The price/book value ratio is calculated by dividing the current stock price by the company's book value per share. The P/B ratio for AVD is 3.9, indicating that the stock is trading for more than its book value. It is important to take the company's debt into account when using the P/B ratio as debt can boost a company's liabilities to the point where they wipe out much of the book value of its hard assets, creating artificially high P/B values. One problem with the P/B value ratio is that it can be difficult to calculate the true book value of a company, so investors should be aware that many measures of book value may provide only a rough estimate, and should be taken with a grain of salt. SEE: Investment Valuation Ratios: Price/Book Value Ratio

Increasing 3%, International (NYSE:IP) is trading at $31.62 per share. The company is currently trading a volume of 2.9 million shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. Margin analysis tells us how effectively management can wring profits from sales and how much room a company has to withstand a downturn, fend off competition and make mistakes. IP's gross profit margin is 26.5%. Relative to its gross profit margin, IP's operating profit margin of 3.2% and net profit margin of 4.6% are low.

It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The dividend yield is measured by taking the annual dividends per share and dividing that number by the stock price. IP has a dividend yield of 3.4%. A stock's dividend yield depends on the nature of a company's business, its posture in the marketplace (value or growth oriented), its earnings and cash flow, and its dividend policy. SEE: Investment Valuation Ratios: Dividend Yield

Agnico-Eagle Mines Limited (NYSE:AEM) has fallen 2.7% and is currently trading at $36.11 per share. The company's volume is currently 601,023 shares for the day, 0.4 times its current daily average. In technical analysis, trading volume is used to determine the strength of a market indicator. Calculating the profit margin is a great way to gain insight into aspects of how well a company generates and retains money. Instead of measuring how much managers earn from assets, equity or invested capital, profit-margin ratios measure how far a company stretches its total revenue or total sales. AEM has a gross profit margin of 48.2%. A company's operating margin is calculated by dividing operating income by revenues. The operating margin for AEM is 29%, which is low compared its gross profit margin. Net profit margin comes as close as possible to summing-up in a single figure how effectively managers run the business. The company has a negative net profit margin of -28.4%. A negative net profit margin means the company spent more money than it made.

Valuation ratios allow the investor to make a quick determination as to a company's investment value. The price/sales ratio measures a company's stock market value by its total revenues or alternatively, a company's price per share by its revenue per share. AEM has a high P/S ratio of 3.03. This could be a good sign if the share price increases. It is important to keep in mind when looking at the P/S ratio that just because a company is generating revenues, this does not mean that the company is profitable, and in the long run, profits drive stock prices.

The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. Daily stock performance should be weighed against historical performance and put in context of the market overall. Tools like valuation ratios and profit margins, however, are only as useful as the context you put them in; remember to take historical data and competitor performance into account.

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