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Tickers in this Article: CLF, PPO, PH, DOV, TNH, AGU, BHP
The market is currently down, with the Nasdaq down 1.7%, the S&P 500 slipping 1.3% and the Dow declining 1.4%. 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 down 1.6%, outperforming the market overall. Currently, the biggest movers in the sector are:
CompanyMarket CapPercentage Change
Cliffs Natural Resources (NYSE:CLF)$7.07 billion-4.1%
Polypore International, Inc. (NYSE:PPO)$1.87 billion-3.7%
Parker-Hannifin (NYSE:PH)$11.71 billion-3.1%
Dover (NYSE:DOV)$9.92 billion-2.7%
Terra Nitrogen Company, L.P. (NYSE:TNH)$4.09 billion-2.7%
Agrium Inc. (USA) (NYSE:AGU)$14.53 billion-2.3%
BHP Billiton (NYSE:BHP)$176.99 billion-2.3%
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Cliffs Natural Resources (NYSE:CLF) is trading at $47.59 per share, down 4.1%. So far today, the company's volume is 1.5 million shares, 0.4 times the average daily volume. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. Margin ratios highlight companies that are worth further examination. CLF's gross profit margin is 41.2%. Relative to its gross profit margin, CLF's operating profit margin of 18.3% and net profit margin of 25.6% are low.

Investment valuation ratios can be very useful in determining the value of a stock, but it is very important to keep in mind that while some financial ratios have general rules (or a broad application), in most instances it is a prudent practice to look at a company's historical performance and use peer company/industry comparisons to put any given company's ratio in perspective. The dividend yield is measured by taking the annual dividends per share and dividing that number by the stock price. CLF's dividend yield is 5%. It is important to remember that while a higher dividend yield is more attractive, all else being equal, a higher dividend yield can also indicate greater perceived risk. SEE: Due Diligence On Dividends

Slipping 3.7%, Polypore International (NYSE:PPO) is currently trading at $38.77 per share. So far today, the company's volume is 172,099 shares. Volume is used to evaluate how meaningful the price movement of a stock is. Margin analysis is a great way to understand the profitability of companies. PPO has a gross profit margin of 49.1%. Operating margin is determined by taking operating income (income minus variable expenses) and dividing it by sales. PPO has an operating profit margin of 21.4%. Net profit margin is a good ratio for determining how a company is performing. Net profit margin for the company is 13.1%.

Valuation ratios allow the investor to make a quick determination as to a company's investment value. The easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. PPO's debt ratio of 65.1% is fairly high. This means that the company's cash flow is significantly impacted by paying off principal and interest and that any negative change in performance or rise in interest rates could result in default. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.

After a decline of 3.1%, Parker-Hannifin (NYSE:PH) has hit a share price of $75.08. The company's volume for the day so far is 640,310 share, 0.4 times its average over the past three months. Volume is an important indicator because it indicates how significant a price shift is. 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. PH's gross profit margin is 28.5%. PH's operating margin of 12.5% and net margin of 8.7% are low relative to its gross margin.

It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The debt-equity (D/E) ratio is a leverage ratio. PH has a debt-equity ratio of 32%, which is on the low side. Companies with low D/E ratios are more attractive to investors because they are better able to protect their business interests in times of decline. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.

At $52.55, Dover (NYSE:DOV) has slipped 2.7%. So far today, 266,915 shares of the company's stock have changed hands. This is less trading activity than there was yesterday. The trading volume for a stock indicates the level of investor interest. Profit-margin ratios measure how much money a company squeezes from its total revenue or total sales. Investors can look at a company's gross profit margin, operating profit margin and net margin to understand a company's profitability. DOV has a gross profit margin of 41.8%. 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. DOV's operating profit margin is 14.5%. Tracking net profit margin over time for a single company can be a valuable tool for seeing how a business is developing. Net margin is 10.9%.

Valuation ratios include 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/earnings to growth (PEG) ratio divides a company's P/E ratio by its growth rate of earnings-per-share. DOV has a PEG ratio of 0.98. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.

Terra Nitrogen Company (NYSE:TNH) is currently trading at a share price of $215, a 2.7% decline. The company's volume is currently 11,211 shares for the day, 0.2 times the average daily volume. If a stock is trading on low volume, then there is not much interest in the stock. On the other hand, if a stock is trading on high volume, then there is a lot of interest in the stock. 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. The gross profit margin for TNH is 68.5%. Compared with its gross profit margin, TNH's operating profit margin of 63.1% and net profit margin of 63.9% are low.

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 price/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. TNH has a high P/S ratio of 5.86. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.

Agrium Inc (NYSE:AGU) has decreased to $89.82 per share, a 2.3% fall. The company's volume for the day so far is 265,805 shares. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. AGU's gross profit margin is 29.7%. AGU has an operating profit margin of 6.8% and a net profit margin of 8.4%, both low compared to its gross profit margin.

Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. Perhaps one of the most widely-used stock analysis tools is the price-to-earnings ratio, or P/E. AGU's P/E ratio of 10.6 is above the industry average of 7.65. This could mean that the market is expecting big things over the next few months or years. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: Understanding The P/E Ratio

BHP Billiton (NYSE:BHP) is down 2.3% to reach $64.67 per share. With 869,946 shares changing hands so far today, the company's volume is 0.3 times its current three-month average. Volume indicates the level of interest that investors have in a company at its current price. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The price/book value ratio is especially important for value investors as it can provide an indication of the true value of a company's assets at a time when its business model may be failing. The P/B ratio for BHP is 2.73, 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. P/B value comparisons should be made among companies in the same industry rather than across industries. SEE: Using The Price-To-Book Ratio To Evaluate Companies

The Bottom Line On any given day, a particular stock may see positive or negative change in its share price. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.

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