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Tickers in this Article: MTH, RYL, LEN, MDC, EXP, MSM, JOY
The market is having a bad day so far. The Nasdaq has declined 1%; the S&P 500 has fallen 0.5%; and the Dow has slipped 0.2%. 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 ahead of the overall market, down only 0.5%, and its biggest movers are currently:
CompanyMarket CapPercentage Change
Meritage (NYSE:MTH)$1.45 billion-5.9%
Ryland Group (NYSE:RYL)$1.42 billion-5.8%
Lennar (NYSE:LEN)$6.86 billion-4.7%
M.D.C. Holdings (NYSE:MDC)$1.9 billion-4.4%
Eagle Materials (NYSE:EXP)$2.03 billion-4%
MSC Industrial Direct Co (NYSE:MSM)$4.42 billion-3.7%
Joy Global (NYSE:JOY)$6.02 billion-3.5%
Broker Summary: Charles Schwab Online Brokerage

At $38.57, Meritage (NYSE:MTH) has slipped 5.9%. This morning, 426,659 shares have been traded, on pace to reach yesterday's volume of 825,790 shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift 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. 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 MTH is a high 1.17. 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.

Ryland Group (NYSE:RYL) is down 5.8% to reach $29.97 per share. So far today, the company's volume is 832,417 shares. This is consistent with its current daily average. The trading volume for a stock indicates the level of investor interest. Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. The debt ratio for RYL is 74.8%, which is relatively high. As such, the company is highly leveraged and not highly liquid. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.

Currently trading at $34.56 per share, Lennar (NYSE:LEN) has fallen 4.7%. So far today, the company's volume is 4.6 million shares, 0.7 times its current three-month average. If a stock price makes a big move up or down, volume lets us know the significance of that move. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). Relative to the industry P/E ratio of 26.39, LEN's 15.4 is low. Companies with low P/E ratios may find it easier to surprise the market to the upside, even if their financial performance is not as strong as that of companies with high P/E ratios. A high or low P/E ratio is not good or bad in and of itself, but a company trading with a high P/E ratio must continue to post strong financial performance or its stock price is likely to fall. SEE: How To Find P/E And PEG Ratios

Falling 4.4%, M.D.C. Holdings (NYSE:MDC) is currently at a share price of $37.86. This morning, the company is trading a volume of 322,172 shares. Volume indicates the level of interest that investors have in a company at its current price. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. MDC has a D/E ratio of 89%. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.

Eagle Materials (NYSE:EXP) has fallen 4% and is currently trading at $43.03 per share. At 179,475 shares, the company's volume so far today is consistent with the volume from yesterday lighter than yesterday's volume of 403,380 shares. 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. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. 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. The capitalization ratio for EXP is 34%. 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.

After a decline of 3.7%, MSC Industrial Direct Co (NYSE:MSM) has hit a share price of $67.84. This morning, the company's volume is 609,797 shares. This is 2.1 times its current daily average. 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/earnings to growth (PEG) ratio can reveal value what price/earnings (P/E) ratios alone may not so that if a company has a high P/E ratio (an indication that its stock is overpriced) but its earnings are growing very quickly, the PEG ratio may reveal that the company is actually fairly valued, or perhaps even a bargain. MSM's PEG ratio of 1.34 is in line with the industry average. While P/E ratios are important indicators of market value, a high P/E in and of itself is not bad because it may indicate a company whose earnings are growing very rapidly, so many investors look at the PEG ratio in order to get an idea of whether or not a particular P/E ratio is justified by underlying earnings growth.

Joy Global (NYSE:JOY) is currently trading at a share price of $54.90, a 3.5% decline. With 2.1 million shares changing hands so far today, the company's volume is 0.7 times its average over the past three months. 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. 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 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. The P/B ratio for JOY is 2.33, indicating that the stock is trading for more 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. A weakness of the P/B value ratio is that while the price component is easily determined by looking at the stock quote, the book value component is more difficult to estimate and more open to individual interpretation and analysis. SEE: Investment Valuation Ratios: Price/Book Value Ratio

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. Keep in mind that all these ratios should be compared against historical numbers and industry information in order to get a more complete picture.

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