The market is on the rise this morning. The Nasdaq has climbed 0.8%; the S&P 500 is up 0.8%; and the Dow has risen 0.9%. 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.
Underperforming the market overall, the Healthcare sector (XLV) is up 0.5%, and these are its current biggest movers:
|Company||Market Cap||Percentage Change|
|IPC The Hospitalist Company (Nasdaq:IPCM)||$728.3 million||+2%|
|Taro Pharmaceutical (NYSE:TARO)||$1.86 billion||+1.9%|
|Fresenius Medical Care AG & Co (NYSE:FMS)||$21.42 billion||+1.8%|
|Celgene (Nasdaq:CELG)||$30.56 billion||+1.8%|
|Cantel (NYSE:CMN)||$703.9 million||-1.4%|
|Theravance (Nasdaq:THRX)||$2.63 billion||-1.4%|
|Elan Corporation, plc (NYSE:ELN)||$6.77 billion||-1.4%|
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IPC The Hospitalist Company (Nasdaq:IPCM) is currently trading at $44.64 per share, a 2% increase. So far today, the company's volume is 19,811 shares, 0.3 times the average volume over the last three months. If a stock price moves on high volume, this means that the change is a significant one. 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. Perhaps one of the most widely-used stock analysis tools is the price-to-earnings ratio, or P/E. Compared to the industry average of 22.44, IPCM's P/E ratio of 23.7 is quite high. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. High P/E stocks could be "growth" stocks, while low PE stocks may be "value" stocks. SEE: Understanding The P/E Ratio
Taro Pharmaceutical (NYSE:TARO) has increased to a share price of $42.56, a 1.9% rise. So far today, the company's volume is 10,973 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. Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The price/book value ratio, often expressed simply as "price-to-book", provides investors a way to compare the market value, or what they are paying for each share, to a conservative measure of the value of the firm. TARO's P/B ratio of 2.78 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. 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
Fresenius Medical Care AG & Co (NYSE:FMS) has risen 1.8% to hit a current price of $72.53 per share. The company's volume is currently 16,011 shares for the day, 0.2 times the average daily volume. High volume indicates a lot of investor interest while low volume indicates the opposite. 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 is a way to measure how much cash flow you are getting for each dollar invested in an equity position - in other words, how much "bang for your buck" you are getting from dividends. The dividend yield for FMS is 0.9%, which is on the low end. This could indicate that that the stock is overpriced or that future dividends might be higher. It is important to remember that while a higher dividend yield is more attractive, all else being equal, a higher dividend yield can also indicate greater perceived risk. SEE: Due Diligence On Dividends
Celgene (Nasdaq:CELG) is at $72.07 per share after an increase of 1.8%. The company is trading at a volume of 603,710 shares. This is about the same trading activity as there was yesterday. In technical analysis, trading volume is used to determine the strength of a market indicator. A company's investment value can be 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 price/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. CELG's P/S ratio of 5.37 is on the high side. 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.
Slipping 1.4%, Cantel (NYSE:CMN) is currently trading at $25.70 per share. With 23,374 shares changing hands so far today, the company's volume is in keeping with the average volume over the past three months. 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 easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. The debt ratio for CMN is a low 38.1%. This indicates that the company engages in conservative financing with opportunities to borrow in the future at no significant risk. 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.
Theravance (Nasdaq:THRX) is down 1.4% to reach $26.72 per share. The company's volume for the day so far is 26,453 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. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. THRX's D/E ratio is 91%. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.
After a decline of 1.4%, Elan Corporation, plc (NYSE:ELN) has hit a share price of $11.38. At 650,304 shares, the company's volume so far today is 0.2 times the average daily volume. 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. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. The capitalization ratio for ELN is 44.1%. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
The Bottom Line On any given day, a particular stock may see positive or negative change in its share price. 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.