The Nasdaq is trading up 0.7%, the S&P 500 has climbed 0.7% and the Dow has increased 0.6% on a good day for the market so far. 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 0.6%, underperforming the market overall. The biggest movers in the sector are currently:
|Company||Market Cap||Percentage Change|
|Methanex Corporation (USA) (Nasdaq:MEOH)||$2.44 billion||+3.9%|
|Dow Chemical (NYSE:DOW)||$37.44 billion||-2.5%|
|Monsanto (NYSE:MON)||$41.54 billion||+2.1%|
|Terra Nitrogen Company, L.P. (NYSE:TNH)||$4.05 billion||+2%|
|Sociedad Quimica y Minera (ADR) (NYSE:SQM)||$14 billion||+2%|
|Compass Minerals International, Inc. (NYSE:CMP)||$2.36 billion||+1.9%|
|Mosaic (NYSE:MOS)||$22.68 billion||+1.9%|
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Methanex Corporation (Nasdaq:MEOH) is at $27.06 per share after an increase of 3.9%. At 543,079 shares, the company's volume so far today is 1.2 times the average daily volume. Volume indicates the level of interest that investors have in a company at its current price. 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. MEOH has a low gross profit margin of 19.6%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. MEOH has an operating profit margin of 8.9% and a net profit margin of 7.1%, both low compared to its gross profit margin.
In making a decision about a potential or existing investment, valuation ratios are useful as a basis for seeing whether the stock price is too high, reasonable, or a bargain. The debt ratio shows the proportion of assets that a company is financing through debt. The debt ratio for MEOH is 60.8%, which is relatively 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.
Dow (NYSE:DOW) is down 2.5% to reach $30.55 per share. The company is trading at a volume of 7.6 million shares. This is below yesterday's volume of 16.5 million shares. A stock's volume conveys how excited investors are about it. 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. DOW has a low gross profit margin of 18.5%. A low gross profit margin compared to competitors may be a sign that the company is under-pricing its products and/or services. Relative to its gross profit margin, DOW's operating profit margin of 5.7% and net profit margin of 4.3% are low.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The dividend yield is calculated by dividing a company's dividends per share by its stock price. DOW's dividend yield is 4.1%. 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
Increasing 2.1%, Monsanto (NYSE:MON) is trading at $79.52 per share. The company's volume is currently 2.4 million shares for the day, 0.8 times the average volume over the last three months. 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 ratios highlight companies that are worth further examination. The gross profit margin for MON is 56.5%. A company's operating margin is calculated by dividing operating income by revenues. The operating margin for MON is 38.1%, which is low compared its gross profit margin. Net profit margin is calculated by dividing net income by sales. Net margin is 15%.
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. 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. MON's capitalization ratio is 11.4%, which is relatively low. A very low capitalization ratio might be a sign that the company is stagnating and reducing the potential earnings for shareholders. The capitalization ratio is one of the more meaningful debt ratios because it focuses on the relationship of debt liabilities as a component of a company's total capital base, which is the capital raised by shareholders and lenders.
Terra Nitrogen Company (NYSE:TNH) has increased to a share price of $223.40, a 2% rise. This morning, the company is trading a volume of 33,604 shares. If a stock price makes a big move up or down, volume lets us know the significance of that move. Margin analysis is a great way to understand the profitability of companies. TNH has a gross profit margin of 68.5%. TNH's operating margin of 63.1% and net margin of 63.9% are low relative to its gross margin.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. Price/earnings ratios (P/E ratios) provide a measure of the relative value of a stock. TNH's P/E ratio is 13.2. 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: Can Investors Trust the P/E Ratio?
Rising 2%, Sociedad Quimica y Minera (NYSE:SQM) is currently trading at $54.26 per share. At 227,900 shares, the company's volume so far today is 0.5 times the average daily volume. 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. The gross profit margin for SQM is 41.2%. Operating margin for SQM is 39% and net margin is 26.6%, both 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. 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. SQM's P/B ratio of 7.28 shows that its share price is higher than its book value. This implies that investors expect management to create more value from a given set of assets and/or that the market value of the firm's assets is significantly higher than their accounting value. 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
After rising 1.9%, Compass Minerals International (NYSE:CMP) is currently trading at a share price of $72.81. The company's volume for the day so far is 72,205 shares. This is less trading activity than there was yesterday. Volume is an important indicator because it indicates how significant a price shift is. 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. CMP's gross profit margin is 34%. Relative to its gross profit margin, CMP's operating profit margin of 19.5% and net profit margin of 12.8% are low.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The price/earnings to growth (PEG) ratio divides a company's P/E ratio by its growth rate of earnings-per-share. PEG ratio for CMP is consistent with the industry average at 1.96. 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.
Mosaic (NYSE:MOS) has risen 1.9% to hit a current price of $54.30 per share. The company's volume for the day so far is 2.7 million share, 0.6 times its average over the past three months. 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. 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. The gross profit margin for MOS is 33.5%. Compared with its gross profit margin, MOS' operating profit margin of 18.9% and net profit margin of 18.6% are low.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The price/sales ratio measures a company's stock market price by its revenues. The P/S ratio for MOS is a high 2.2. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. 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.
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. 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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