Filed Under: ,
Tickers in this Article: ELN, CNC, DNDN, NEOG, LLY, VVUS, MDVN
On a bad day for the market, the Nasdaq has decreased 0.2%, the S&P 500 has declined 0.5% and the Dow is down 0.6%. The healthcare sector is the category of stocks relating to medical and healthcare goods or services. This sector includes hospital management firms, health maintenance organizations (HMOs), biotechnology and a variety of medical products. Stocks in the healthcare sector are often considered to be defensive because the products and services are essential. Even during economic downturns, people will still require medical aid and medicine to overcome illness. Having a consistent demand for goods and services makes this sector less sensitive to business cycle fluctuations.

The Healthcare sector (XLV) is down 0.8%, underperforming the market overall. The current biggest movers in the sector are:
CompanyMarket CapPercentage Change
Elan Corporation, plc (ADR) (NYSE:ELN)$7.93 billion-12.1%
Centene Corp (NYSE:CNC)$1.78 billion+7.5%
Dendreon Corporation (Nasdaq:DNDN)$956.3 million+6.4%
Neogen Corporation (Nasdaq:NEOG)$995.6 million-6.2%
Eli Lilly & Co (NYSE:LLY)$50.86 billion-4.7%
VIVUS, Inc. (Nasdaq:VVUS)$2.23 billion+4.6%
Medivation, Inc. (Nasdaq:MDVN)$3.38 billion+3.2%
Broker Summary: Charles Schwab Online Brokerage

After a precipitous drop of 12.1%, Elan Corporation, plc (NYSE:ELN) is now trading at a share price of $11.88. So far today, the company's volume is 11.6 million shares, 4.1 times the current daily average. Volume indicates the level of interest that investors have in a company at its current price. Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. 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. ELN's P/B ratio of 8.67 shows that its share price is higher than its book value. 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. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: Using The Price-To-Book Ratio To Evaluate Companies

Centene (NYSE:CNC) is at $37.24 per share after an increase of 7.5%. The company's volume for the day so far is 1.8 million shares. If a stock price makes a big move up or down, volume lets us know the significance of that move. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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 CNC is 0.43, which is relatively low. Low P/S ratios are more attractive than high ratios because this indicates that an investor is 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.

After rising 6.4%, Dendreon (Nasdaq:DNDN) is currently trading at a share price of $6.61. The company's volume is currently 8.1 million shares for the day, two times its current three-month average. High volume indicates a lot of investor interest while low volume indicates the opposite. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The debt ratio shows the proportion of assets that a company is financing through debt. DNDN has a high debt ratio of 70.3%. 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.

Neogen (Nasdaq:NEOG) is currently trading at a share price of $39.65, a 6.2% decline. The company is trading at a volume of 101,520 shares. A stock's volume conveys how excited investors are about it. 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. The price/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). NEOG's P/E ratio of 45.7 is above the industry average of 19.84. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. 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

Falling 4.7%, Eli Lilly (NYSE:LLY) is currently at a share price of $41.75. The company's volume is currently 7.5 million shares for the day, 1.3 times the average daily volume. 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 is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. LLY's capitalization ratio is 26.7%, which is relatively low. Low leverage is a significant balance sheet strength, a sign of a less risky investment. 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.

VIVUS (Nasdaq:VVUS) has moved up 4.6% and is currently trading at $23.41 per share. This morning, the company is trading a volume of 5.3 million shares. In technical analysis, trading volume is used to determine the strength of a market indicator. 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 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. The P/B ratio for VVUS is 7.16, 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 has its shortcomings but is still widely used as a valuation metric, more relevant for use by investors looking at capital-intensive or finance-related businesses, such as banks; book value does not carry much meaning for service-based firms with few tangible assets. SEE: Investment Valuation Ratios: Price/Book Value Ratio

Medivation (Nasdaq:MDVN) has risen 3.2% and is currently trading at $96.26 per share. With 277,212 shares changing hands so far today, the company's volume is consistent with its current three-month average. 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. Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. A price/sales ratio is derived by dividing stock market price by company sales. The P/S ratio for MDVN is a high 32.77. This could be a good sign if the share price increases. It is important to compare P/S ratios for companies in the same industry, as ratios can vary quite widely for companies in different industries.

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. 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.

comments powered by Disqus

Trading Center