After the morning's trading, the Nasdaq is trading down 0.5%, the S&P 500 is down 0.2% and the Dow has risen 0.1%. 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.
These are the biggest movers in the Basic Materials sector (XLB) (+0.4%):
|Company||Market Cap||Percentage Change|
|A. Schulman Inc (Nasdaq:SHLM)||$597.1 million||+10.2%|
|WD-40 Company (Nasdaq:WDFC)||$802.9 million||-4.4%|
|Domtar Corp. (USA) (NYSE:UFS)||$3.33 billion||-4.1%|
|American Vanguard Corp. (NYSE:AVD)||$761.9 million||+3.7%|
|LSB Industries, Inc. (NYSE:LXU)||$684.2 million||+2.3%|
|Celanese Corporation (NYSE:CE)||$5.21 billion||+2.2%|
|Freeport Copper (NYSE:FCX)||$32.77 billion||-2.1%|
Broker Summary: Charles Schwab Online Brokerage
A. Schulman (Nasdaq:SHLM) rose a significant 10.2% to reach $22.29 per share. So far today, the company's volume is 294,523 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. SHLM has a low gross profit margin of 14.7%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. SHLM's operating margin of 2.8% and net margin of 2.2% are low relative to its gross margin.
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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. The P/S ratio for SHLM is 0.35, which is relatively low. The lower the P/S ratio, the more reasonably price the stock, all else being equal. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.
WD-40 (Nasdaq:WDFC) has decreased to $48.21 per share, a 4.4% fall. With 116,284 shares changing hands so far today, the company's volume is 1.8 times its current three-month average. A stock's volume conveys how excited investors are about it. 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 WDFC is 49.5%. Investors trying to assess a company's ability to continue to pay its fixed expenses even if its business declines may want to evaluate the operating margin ratio. WDFC has an operating profit margin of 17.1%. 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. Net margin is 10.3%.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. WDFC has a low debt ratio of 37.6%. A low debt ratio means the company has more available cash flow. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Domtar Corp (NYSE:UFS) is down 4.1% to reach $75.13 per share. This morning, the company's volume is 232,042 shares. This is 0.7 times the current daily average. High volume indicates a lot of investor interest while low volume indicates the opposite. 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. UFS has a low gross profit margin of 24.1%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. Compared with its gross profit margin, UFS' operating profit margin of 7.8% and net profit margin of 4.7% are low.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The debt-equity (D/E) ratio is a leverage ratio. The debt-equity ratio of 32% is relatively low. 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.
American (NYSE:AVD) is currently trading at $28.39 per share, a 3.7% increase. This morning, 98,072 shares have been traded, which is less activity than yesterday's volume of 160,392 shares. Volume is used to evaluate how meaningful the price movement of a stock 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. The gross profit margin for AVD is 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%. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. The company's net profit margin is 8%.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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. AVD's capitalization ratio is 18.2%, which is relatively low. Investors generally consider a company with low debt and high equity levels is a good quality investment. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.
Rising 2.3%, LSB Industries (NYSE:LXU) is currently trading at $31.34 per share. This morning, the company is trading a volume of 33,526 shares. 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. LXU has a gross profit margin of 28.5%. Relative to its gross profit margin, LXU's operating profit margin of 12.1% and net profit margin of 9.5% are low.
A wide array of ratios can be used by investors to estimate the attractiveness of a potential or existing investment and get an idea of its valuation. The price/earnings to growth (PEG) ratio compares a company's P/E ratio to its earnings-per-share growth rate, which tells you whether or not you are a good value when purchasing a stock with a high price/earnings ratio (P/E ratio). LXU has a PEG ratio of 0.94, which is consistent with the industry average. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
Celanese (NYSE:CE) has risen 2.2% to hit a current price of $34.01 per share. So far today, the company's volume is 805,386 shares, 0.4 times the average volume over the last three months. 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. CE has a low gross profit margin of 23.6%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. CE's operating margin of 6% and net margin of 9.5% 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. 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. The P/B ratio for CE is 3.45, indicating that the stock is trading for more than its book value. This may be a sign that the company is overvalued. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: Investment Valuation Ratios: Price/Book Value Ratio
The company's volume for the morning is 6.4 million shares. This is 0.4 times its 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. 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. FCX has a gross profit margin of 49.7%. 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. FCX's operating profit margin of 37.7% is low relative to its gross profit margin. Net profit margin compares net income with sales. Net profit margin for the company is 19.3%.
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. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). FCX's P/E ratio is 8.7. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: The P/E Ratio: A Good Market-Timing Indicator
The Bottom Line The nature of the market is such that stocks will have good days and bad days. It is important to weigh current activity against historical performance when making any investment decisions. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.