The Nasdaq is down 1.5%, the S&P 500 is down 0.9% and the Dow has fallen 1%, marking a bad morning for the market. The financial sector is the category of stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate. Financial services perform best in low interest rate environments. A large portion of this sector generates revenue from mortgages and loans, which gain value as interest rates drop. Furthermore, when the business cycle is in an upswing, the financial sector benefits from additional investments. Improved economic conditions usually lead to more capital projects and increased personal investing. New projects require financing, which usually leads to a larger number of loans.

The Financial sector (XLF) is down 1.3%, outperforming the market overall. Currently, the biggest movers in the sector are:


CompanyMarket CapPercentage Change
Barclays PLC (ADR) (NYSE:BCS)$37.59 billion-16%
WellPoint (NYSE:WLP)$22.99 billion-7.1%
Cigna (NYSE:CI)$13.09 billion-4.5%
Molina Healthcare, Inc. (NYSE:MOH)$988.2 million+4.5%
UnitedHealth Group (NYSE:UNH)$61.51 billion-3.9%
Humana (NYSE:HUM)$12.98 billion-3.4%
Nationstar Mortgage Holdings Inc (NYSE:NSM)$1.82 billion+3%
Broker Summary: TD Ameritrade Thinkorswim

Taking a 16% hit, Barclays PLC (NYSE:BCS) is currently trading at $10.36 per share. The company's volume is currently 12.7 million shares for the day, more than yesterday's 3.1 million shares. A stock's volume conveys how excited investors are about it. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The debt ratio is calculated by dividing total liabilities by total assets. BCS has a high debt ratio of 96.4%. 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 7.1%, WellPoint (NYSE:WLP) has hit a share price of $64.57. The company's volume for the day so far is 10.6 million shares. If a stock price makes a big move up or down, volume lets us know the significance of that move. 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. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). WLP's P/E ratio of 9.4 is under the industry average of 11.15. A low P/E ratio may indicate that the market expects relatively slower earnings growth. 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

Cigna (NYSE:CI) has decreased to $43.35 per share, a 4.5% fall. The company's volume for the day so far is 5.8 million share, 2.4 times the current three-month average. Volume is an important indicator because it indicates how significant a price shift is. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The price/earnings to growth (PEG) ratio is calculated by dividing the price/earnings ratio by growth in earnings-per-share; the lower the PEG ratio, the more reasonably valued the security. CI has a PEG ratio of 0.91, 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.

Molina Healthcare (NYSE:MOH) is at $22.28 per share after an increase of 4.5%. This morning, the company's volume is 2.1 million shares. This is 2.8 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. Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The price/book value ratio, often expressed simply as "price-to-book", provides investors a way to compare the market value, or what they are paying for each share, to a conservative measure of the value of the firm. MOH's stock is trading for more than its book value with a P/B ratio of 1.33. 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. Users need to be careful when applying this ratio though, as it is more useful for industrial companies that have a lot of tangible assets than it is for technology or consumer product companies that may not have much in the way of hard assets. SEE: Investment Valuation Ratios: Price/Book Value Ratio

Currently trading at $56.98 per share, UnitedHealth (NYSE:UNH) has fallen 3.9%. So far today, the company's volume is 13.7 million shares, which is more trading activity than there was yesterday. Volume is used to evaluate how meaningful the price movement of a stock is. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. Dividend yield measures the income that a stock will generate for an investor. UNH has a low dividend yield of 1.4%. This could indicate that that the stock is overpriced or that future dividends might be higher. High dividend yields are generally more important to value investors, investors in larger companies, and income oriented investors than they are to growth investors, investors in small cap stocks, and investors in new or emerging companies. SEE: Guide To Stock-Picking Strategies: Income Investing

Humana (NYSE:HUM) is down 3.4% to reach $76.80 per share. The company is currently trading a volume of 2.6 million shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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 price/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. The P/S ratio for HUM is 0.4, which is relatively low. A company with a lower P/S ratio is generally considered more attractive, since investors are paying less for each dollar of sales. 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.

Nationstar Mortgage Holdings (NYSE:NSM) is currently trading at $21.08 per share, a 3% increase. With 384,090 shares changing hands so far today, the company's volume is 0.3 times its current three-month average. 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. 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 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. NSM has a low capitalization ratio of 7.4%. Investors generally consider a company with low debt and high equity levels is a good quality 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.

The Bottom Line The nature of the market is such that stocks will have good days and bad days. 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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Tickers in this Article: BCS, WLP, CI, MOH, UNH, HUM, NSM

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