On a good day for the market, the Nasdaq has climbed 0.1%, the S&P 500 has risen 0.2% and the Dow is up 0.3%. 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 up 0.4%, outperforming the market overall. The biggest movers in the sector so far are:
|Company||Market Cap||Percentage Change|
|Select Medical Holdings Corporation (NYSE:SEM)||$1.67 billion||+21.4%|
|Tornier N.V. (Nasdaq:TRNX)||$864.9 million||-18%|
|NxStage Medical, Inc. (Nasdaq:NXTM)||$890.6 million||-12.6%|
|Spectrum Pharmaceuticals, Inc. (Nasdaq:SPPI)||$819.6 million||-12.4%|
|Warner Chilcott Plc (Nasdaq:WCRX)||$4.45 billion||-7.8%|
|Express Scripts (Nasdaq:ESRX)||$45.12 billion||+7.5%|
|ABIOMED, Inc. (Nasdaq:ABMD)||$886.3 million||-3.3%|
Broker Summary: Charles Schwab Online Brokerage
After a big jump of 21.4%, Select Medical (NYSE:SEM) is trading at $14.37 per share. The company is trading at a volume of 708,310 shares. Yesterday, volume was only 262,067 shares. If a stock price makes a big move up or down, volume lets us know the significance of that move. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. The debt ratio is calculated by dividing total liabilities by total assets. SEM has a high debt ratio of 70.1%. As such, the company is highly leveraged and not highly liquid. 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.
Taking a 18% hit, Tornier (Nasdaq:TRNX) is currently trading at $17.92 per share. The company's volume is currently 665,810 shares for the day, 10.2 times the current daily average. 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. 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/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. TRNX has a high P/S ratio of 3.81. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. 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.
NxStage Medical (Nasdaq:NXTM) is currently trading at $13.86 per share, after a steep drop of 12.6%. So far today, 1.3 million shares have changed hands. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. While investment valuation ratios are useful tools in estimating the attractiveness of an investment, remember that it is important to look at a company's historical performance and compare the company ratios with its competitors and industry overall. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. NXTM's capitalization ratio is 22.4%, which is relatively low. Investors generally consider a company with low debt and high equity levels is a good quality investment. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
Spectrum Pharmaceuticals (Nasdaq:SPPI) is at a share price of $12.06 after a sharp decline of 12.4%. At 3.6 million shares, the company's volume so far today is 1.8 times the average volume over the last three months. 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 a 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. 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. If the price/book value ratio of a stock is high, it may indicate that the stock is expensive, while a lower ratio may indicate that the stock is a bargain. SPPI's stock is trading for more than its book value with a P/B ratio of 3.0. 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. 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: How Buybacks Warps The Price-To-Book Ratio
Warner (Nasdaq:WCRX) is trading at $16.39 per share, down 7.8%. The company's volume for the day so far is 9.7 million shares. This is greater than yesterday's volume of 4.2 million shares. Volume is an important indicator because it indicates how significant a price shift is. Valuation ratios allow the investor to make a quick determination as to a company's investment value. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). WCRX has a P/E ratio of 15.6, high compared to the industry average of 0.79. This could mean that the market is expecting big things over the next few months or years. To determine the P/E ratio, an investor divides the market price of the stock by the earnings-per-share (EPS) of the stock. SEE: How To Find P/E And PEG Ratios
Express Scripts (Nasdaq:ESRX) has risen 7.5% and is currently trading at $60.20 per share. The company's volume is currently 9.3 million shares for the day, 2.3 times the average daily volume. 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. The debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. ESRX's debt ratio of 85.8% is fairly high. This means that most of the company's assets are financed through debt. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Slipping 3.3%, ABIOMED (Nasdaq:ABMD) is currently trading at $21.71 per share. The company's volume for the day so far is 278,889 shares. A stock's volume conveys how excited investors are about it. 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/sales ratio measures a company's stock market price by its revenues. The P/S ratio for ABMD is a high 6.54. This could be a good sign if the share price increases. 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.
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. It is important to weigh current activity against historical performance when making any investment decisions. 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.