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Tickers in this Article: LII, PNR, TDG, ASTE, BEAV, COL, ATK
The market is having a bad day so far: the Nasdaq has decreased 0.2%; the S&P 500 has declined 0.5%; and the Dow is down 0.6%. The capital goods sector is the category of stocks related to the manufacture or distribution of goods. The sector is diverse, containing companies that manufacture machinery used to create capital goods, electrical equipment, aerospace and defense, engineering and construction projects. It is also referred to as the "industrials sector". Performance in the capital goods sector is sensitive to fluctuations in the business cycle. Because it relies heavily on manufacturing, the sector does well when the economy is booming or expanding. As economic conditions worsen, the demand for capital goods drops off, usually lowering the prices of stocks in the sector.

The Capital Goods sector (XLI) is currently lagging behind the overall market, down 0.9%, and its current biggest movers are:
CompanyMarket CapPercentage Change
Lennox International Inc. (NYSE:LII).36 billion-7%
Pentair, Inc. (NYSE:PNR).92 billion+5.5%
TransDigm Group Incorporated (NYSE:TDG).58 billion-5.2%
Astec Industries, Inc. (Nasdaq:ASTE)7.7 million-5.2%
BE Aerospace, Inc. (Nasdaq:BEAV).35 billion-4.9%
Rockwell Collins (NYSE:COL).13 billion-4.8%
Alliant Techsystems Inc. (NYSE:ATK).48 billion-3.2%
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Lennox International (NYSE:LII) is trading at $43.13 per share, down 7%. So far this morning, 939,453 shares have changed hands. This is 1.6 times its 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. 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 easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. The debt ratio for LII is 73.3%, which is relatively high. 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.

Pentair (NYSE:PNR) is at $41.80 per share after an increase of 5.5%. So far today, the company's volume is 873,715 shares, 1.4 times the average volume over the last three months. A stock's volume conveys how excited investors are about it. Investment valuation ratios can be very useful in determining the value of a stock, but it is very important to keep in mind that while some financial ratios have general rules (or a broad application), in most instances it is a prudent practice to look at a company's historical performance and use peer company/industry comparisons to put any given company's ratio in perspective. To a large degree, the debt-equity (D/E) ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. PNR's D/E ratio is 70%. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.

Currently trading at $121.99 per share, TransDigm Group (NYSE:TDG) has fallen 5.2%. So far today, 532,793 shares have changed hands. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. A company's capitalization (not to be confused with its market capitalization) is the term used to describe the makeup of a company's permanent or long-term capital, which consists of both long-term debt and shareholders' equity. TDG's capitalization ratio of 78.4% is relatively high. If the company is a company is in a highly competitive business and hobbled by high debt, it will find its competitors taking advantage of its problems to grab more market share. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.

Astec Industries (Nasdaq:ASTE) is down 5.2% to reach $27.78 per share. The company's volume is currently 113,844 shares for the day, which is more trading activity than there was yesterday. Volume is an important indicator because it indicates how significant a price shift is. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. As with most ratios, comparisons of company price/earnings to growth ratios (PEG ratios) are most appropriate for similar companies. ASTE's PEG ratio of 1.14 is in line 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.

Falling 4.9%, BE Aerospace (Nasdaq:BEAV) is currently at a share price of $39.85. So far today, the company's volume is 3.6 million shares. This is 4.3 times the average daily volume. 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. The price/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. BEAV has a P/B ratio of 2.11 which shows that its share price is higher than its book value. 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. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: How Buybacks Warps The Price-To-Book Ratio

At $46.80, Rockwell (NYSE:COL) has slipped 4.8%. The company's volume is currently 2.2 million shares for the day, two times its average over the past three months. 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. Price/earnings ratios (P/E ratios) provide a measure of the relative value of a stock. COL's P/E ratio is 12.0. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: Can Investors Trust the P/E Ratio?

Alliant Techsystems (NYSE:ATK) is currently trading at a share price of $43.86, a 3.2% decline. The company is currently trading a volume of 232,143 shares. 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. 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. A price/sales ratio is derived by dividing stock market price by company sales. The P/S ratio for ATK is 0.36, which is relatively low. Highly levered companies are likely to have lower P/S ratios because the price aspect of this ratio only measures stock market valuation while sales is a function of both stock market and bond market capitalization. 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 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.

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