The morning has been bad for the market. The Nasdaq has fallen 2%; the S&P 500 has decreased 1.7%; and the Dow has declined 1.3%. 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 currently ahead of the overall market, down only 1.5%, and its biggest movers are currently:
|Company||Market Cap||Percentage Change|
|Greif, Inc. (NYSE:GEF)||$1.96 billion||-5%|
|Haynes International, Inc. (Nasdaq:HAYN)||$606.3 million||-5%|
|Rockwood Holdings, Inc. (NYSE:ROC)||$3.5 billion||-4.8%|
|Cliffs Natural Resources (NYSE:CLF)||$6.79 billion||-4.8%|
|Terra Nitrogen Company, L.P. (NYSE:TNH)||$3.66 billion||+4.6%|
|CF Industries Holdings (NYSE:CF)||$11.66 billion||+3.4%|
|BHP Billiton (NYSE:BHP)||$169.29 billion||-3.3%|
Broker Summary: Fidelity Online Brokerage
Currently trading at $39.33 per share, Greif (NYSE:GEF) has fallen 5%. This morning, the company is trading a volume of 91,008 shares. If a stock price moves on high volume, this means that the change is a significant one. Margin ratios highlight companies that are worth further examination. GEF has a low gross profit margin of 22%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. GEF has an operating profit margin of 6.8% and a net profit margin of 3.3%, both low compared to its gross profit margin.
Valuation ratios like 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 are useful in determining how attractive a potential or existing investment is. The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. GEF's debt ratio of 68.4% is fairly high. This means that most of the company's assets are financed through debt. However, one thing to note with this ratio: it isn't a pure measure of a company's debt (or indebtedness), as it also includes operational liabilities, such as accounts payable and taxes payable.
Slipping 5%, Haynes International (Nasdaq:HAYN) is currently trading at $46.89 per share. With 25,615 shares changing hands so far today, the company's volume is 0.3 times its current three-month average. 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. HAYN has a low gross profit margin of 21.5%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. HAYN's operating margin of 14.5% and net margin of 7.4% 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. The price/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). HAYN is in line with the industry average with a P/E ratio of 14.1. A high or low P/E ratio is not good or bad in and of itself, but a company trading with a high P/E ratio must continue to post strong financial performance or its stock price is likely to fall. SEE: The P/E Ratio: A Good Market-Timing Indicator
After a decline of 4.8%, Rockwood Holdings (NYSE:ROC) has hit a share price of $42.91. The company's volume for the day so far is 284,575 shares. This is 0.3 times the current daily average. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. ROC has a gross profit margin of 43%. All else being equal, investors should feel more confident investing in a company with a high operating margin than one with a low operating margin. Operating profit margin for ROC is 16.7%. While ratios such as price/earnings (P/E) or price/book value look at the relative attractiveness of a stock, the net profit margin ratio focuses on company performance rather that stock market valuation. The company's net profit margin is 9.6%.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. A company's capitalization (not to be confused with its market capitalization) is the term used to describe the makeup of a company's permanent or long-term capital, which consists of both long-term debt and shareholders' equity. ROC's capitalization ratio is 49%. 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.
Cliffs Natural Resources (NYSE:CLF) is currently trading at a share price of $45.36, a 4.8% decline. The company's volume is currently 1.5 million shares for the day, lighter than yesterday's volume of 6.8 million shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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. CLF's gross profit margin is 41.2%. Compared with its gross profit margin, CLF's operating profit margin of 18.3% and net profit margin of 25.6% are low.
Valuation ratios allow the investor to make a quick determination as to a company's investment value. One of the favorite tools of many value investors is analyzing price/book value ratios, as it provides a measure of the underlying value of a company's assets as compared to the valuation of its equity. CLF's stock is trading for more than its book value with a P/B ratio of 1.05. This high share price relative to asset value is likely to indicate that the company has been earning a very high return on its assets. 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
Terra Nitrogen Company (NYSE:TNH) has increased to a share price of $207.05, a 4.6% rise. So far today, 37,550 shares have changed hands. Price change alone is not enough to know how a stock is doing. Volume is an important secondary indicator used to confirm trends suggested by price movement. Margin analysis is a great way to understand the profitability of companies. TNH has a gross profit margin of 68.5%. Relative to its gross profit margin, TNH's operating profit margin of 63.1% and net profit margin of 63.9% are low.
A company's investment value can be 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. Dividend yield measures the income that a stock will generate for an investor. Dividend yield for TNH is a high 8.1%. This could mean either that the stock is underpriced or that the company has fallen on hard times and future dividends will not be as high as previous ones. It is important to remember that dividends are only one component of a stock's return and capital appreciation (or decline) must also be considered when evaluating a security. SEE: Guide To Stock-Picking Strategies: Income Investing
After rising 3.4%, CF Industries (NYSE:CF) is currently trading at a share price of $183.72. So far today, the company's volume is 1.1 million shares, 0.8 times its average over the past three months. The trading volume for a stock indicates the level of investor interest. 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. CF's gross profit margin is 54%. Operating margin can be an important ratio for some investors, particularly those investing in weaker companies or companies in cyclical industries. Relative to its gross profit margin, CF's operating margin of 43.9% is on the low side. Net profit margin comes as close as possible to summing-up in a single figure how effectively managers run the business. Net profit margin for the company is 25.2%.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. While measuring a price/earnings ratio (P/E ratio) is a popular valuation technique, the measure cannot be calculated for companies without earnings, so some investors analyze the price/sales ratio. CF has a high P/S ratio of 1.86. This could be a good sign if the share price increases. A limitation of the P/S ratio is that the price component measures only stock market captialization, while sales are a function of the entire capital structure, potentially leading to wide differences between levered and unlevered companies.
BHP Billiton (NYSE:BHP) has fallen 3.3% and is currently trading at $61.23 per share. The company's volume for the morning is 1.8 million shares. This is 0.6 times its average daily volume. High volume indicates a lot of investor interest while low volume indicates the opposite. Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. BHP has a debt ratio of 48.8%, which is fairly low. This indicates that the company engages in conservative financing with opportunities to borrow in the future at no significant risk. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
The Bottom Line The nature of the market is such that stocks will have good days and bad days. Daily stock performance should be weighed against historical performance and put in context of the market overall. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.