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Tickers in this Article: HNP, XTXI, CPN, XTEX, NU, TRP, AWR
This morning's trading has marked a bad day for the market so far. The Nasdaq is trading down 0.2%; the S&P 500 has declined 0.1%; and the Dow has slipped 0.1%. The utilities sector is a category of stocks for utilities such as gas and power. It contains companies such as electric, gas and water firms and integrated providers. Because utilities require significant infrastructure, these firms often carry large amounts of debt. With a high debt load, utilities companies become sensitive to changes in the interest rate. As interest rates rise or drop, the debt payments will increase or decrease. The utilities sector performs best when interest rates are falling or remain low.

Despite a bad day for the market overall so far, the Utilities sector (XLU) is up 0.2% and its biggest movers are currently:
CompanyMarket CapPercentage Change
Huaneng Power International, Inc. (ADR) (NYSE:HNP)$10.29 billion-3%
Crosstex Energy, Inc. (Nasdaq:XTXI)$650.6 million-1.8%
Calpine Corporation (NYSE:CPN)$8.63 billion-1.8%
Crosstex Energy, L.P. (Nasdaq:XTEX)$863.8 million-1.6%
Northeast Utilities (NYSE:NU)$12.53 billion+1.6%
TransCanada Corporation (USA) (NYSE:TRP)$31.45 billion+1.5%
American States Water Co (NYSE:AWR)$765.5 million+1.5%
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Huaneng Power International, Inc (NYSE:HNP) has fallen 3% and is currently trading at $28.42 per share. So far this morning, 24,892 shares have changed hands. This is 0.2 times the average daily volume. 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. Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The debt-equity (D/E) ratio is a leverage ratio. HNP's D/E ratio of 316% is on the high side. Generally, a high D/E ratio means that the company may have difficulty generating enough cash to pay off its debts. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.

Slipping 1.8%, Crosstex Energy (Nasdaq:XTXI) is currently trading at $13.49 per share. At 78,864 shares, the company's volume so far today is consistent with its current three-month average. 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. 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 capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. XTXI has a high capitalization ratio of 84.5%. A high capitalization ratio is not necessarily bad since higher financial leverage can increase the return on a shareholder's investment. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.

At $17.55, Calpine (NYSE:CPN) has slipped 1.8%. So far today, the company's volume is 1.6 million shares. If a stock price moves on high volume, this means that the change is a significant one. 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. Price/earnings ratios (P/E ratios) provide a measure of the relative value of a stock. CPN's P/E ratio of 89.4 is above the industry average of 10.67. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: Profit With The Power Of Price-To-Earnings

Falling 1.6%, Crosstex Energy (Nasdaq:XTEX) is currently at a share price of $16.70. So far today, the company's volume is 77,117 shares, on pace to reach yesterday's volume of 155,395 shares. In technical analysis, trading volume is used to determine the strength of a market indicator. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. The P/B ratio for XTEX is 0.97 because the stock is trading for less than its book value. Industries that require more infrastructure capital (for each dollar of profit) will usually trade at P/B ratios much lower than those that don't. 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: Using The Price-To-Book Ratio To Evaluate Companies

Northeast Utilities (NYSE:NU) has increased to a share price of $40.59, a 1.6% rise. The company's volume for the morning is 478,455 shares. This is 0.4 times its current daily average. Volume is used to evaluate how meaningful the price movement of a stock is. 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. Dividend yield measures the income that a stock will generate for an investor. NU has a dividend yield of 3.4%. 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: Dividend Yield For The Downturn

TransCanada Corporation (NYSE:TRP) has risen 1.5% and is currently trading at $45.33 per share. The company's volume is currently 149,907 shares for the day, 0.4 times the current three-month average. High volume indicates a lot of investor interest while low volume indicates the opposite. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. While measuring a price/earnings ratio (P/E ratio) is a popular valuation technique, the measure cannot be calculated for companies without earnings, so some investors analyze the price/sales ratio. TRP has a high P/S ratio of 3.38. 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.

American States (NYSE:AWR) is currently trading at $41.21 per share, a 1.5% increase. So far today, 30,453 shares have changed hands. Volume indicates the level of interest that investors have in a company at its current price. 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 debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. AWR has a debt ratio of 66.7%, which is on the high side. 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.

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. 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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