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Tickers in this Article: JOY, IR, ESL, CAT, NPK, GDI, LPX
The market is having a bad day so far: the Nasdaq has decreased 0.8%; the S&P 500 has declined 0.5%; and the Dow has fallen 0.7%. 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 down 1.2%, underperforming the market overall. The current biggest movers in the sector are:
CompanyMarket CapPercentage Change
Joy Global (NYSE:JOY)$5.65 billion-3.5%
Ingersoll-Rand (NYSE:IR)$14.41 billion-3.1%
Esterline (NYSE:ESL)$1.84 billion-2.9%
Caterpillar (NYSE:CAT)$55.74 billion-2.9%
National Presto Industries (NYSE:NPK)$500.6 million-2.5%
Gardner Denver (NYSE:GDI)$2.95 billion-2.3%
Louisiana-Pacific (NYSE:LPX)$1.85 billion+2.1%
Broker Summary: Charles Schwab Online Brokerage

Joy Global (NYSE:JOY) has fallen 3.5% and is currently trading at $51.50 per share. The company's volume is currently 916,971 shares for the day, 0.3 times the average daily volume. High volume indicates a lot of investor interest while low volume indicates the opposite. 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 capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. JOY's capitalization ratio is 38.1%. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.

Ingersoll-Rand (NYSE:IR) has decreased to $45.32 per share, a 3.1% fall. The company's volume for the day so far is 1.3 million shares. 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. 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 provides a way of evaluating whether a stock is relatively cheap or expensive. IR's P/B ratio of 1.91 shows that its share price is higher 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

Falling 2.9%, Esterline (NYSE:ESL) is currently at a share price of $58.05. The company's volume is currently 221,214 shares for the day, 0.7 times the average volume over the last three months. 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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. ESL has a high P/S ratio of 1.11. 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.

After a decline of 2.9%, Caterpillar (NYSE:CAT) has hit a share price of $82.86. The company's volume for the day so far is 4.4 million shares. Volume indicates the level of interest that investors have in a company at its current price. 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. CAT has a high debt ratio of 82.1%. 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 2.5%, National Presto Industries (NYSE:NPK) is currently trading at $70.88 per share. So far today, the company's volume is 15,220 shares, in line with the current daily average. 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. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. NPK has a P/E ratio of 11.4, high compared to the industry average of 10.23. Usually, if a stock has a high P/E ratio, it indicates that the market expects the company to grow earnings quickly in the future. 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: The P/E Ratio: A Good Market-Timing Indicator

At $58.92, Gardner Denver (NYSE:GDI) has slipped 2.3%. This morning, the company is trading a volume of 223,927 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. Valuation ratios allow the investor to make a quick determination as to a company's investment value. 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. GDI's capitalization ratio is 24%, which is relatively low. Investors generally consider a company with low debt and high equity levels is a good quality 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.

Louisiana-Pacific (NYSE:LPX) is currently trading at $13.71 per share, a 2.1% increase. So far today, the company's volume is 844,903 shares, 0.3 times its current three-month average. Volume is used to evaluate how meaningful the price movement of a stock is. 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. 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. The P/B ratio for LPX is 1.97, 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. 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: Using The Price-To-Book Ratio To Evaluate Companies

The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. 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.

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