Consumer Cyclical Stocks, Including NIKE, Making Big Moves on August 28, 2012

By Investopedia Staff | August 28, 2012 AAA

It's been a bad day for the market after the morning's trading. The Nasdaq has declined 0.1%; the S&P 500 has decreased 0.1%; and the Dow is down 0.1%. The consumer cyclical sector is a category of stocks that relies heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment and retail. The category can be further divided into durable and non-durable sections. Durable cyclicals include physical goods such as hardware or vehicles, while non-durables represent items like movies or hotel services. The performance of consumer cyclicals is highly related to the state of the economy. They represent goods and services that are not considered necessities, but luxurious purchases. During contractions or recessions, people have less disposable income to spend on consumer cyclicals. When the economy is expanding or booming, the sales of these goods rise as retail and leisure spending increase.

Despite a bad day for the market overall so far, the Consumer Cyclical sector (XLY) is up 0.2% and its biggest movers are currently:

Company Market Cap Percentage Change
Movado Group (NYSE:MOV) $757 million +16.1%
PVH (NYSE:PVH) $6.23 billion +5.1%
Warnaco Group (NYSE:WRC) $2 billion +3.4%
G-III Apparel (Nasdaq:GIII) $608.9 million +3.1%
Under Armour (NYSE:UA) $5.8 billion +2.9%
Nortek (Nasdaq:NTK) $804.8 million -2.4%
NIKE (NYSE:NKE) $35.1 billion +2.3%

Broker Summary: Charles Schwab Online Brokerage

Movado Group (NYSE:MOV) has soared 16.1% to reach a current price of $34.95 per share. So far today, the company's volume is 2.3 million shares, 10.8 times its current daily average. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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/book value ratio is one of the more common methods of determining whether a stock is fairly valued. MOV's stock is trading for more than its book value with a P/B ratio of 2.25. 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. To put things in perspective, should be made among companies in the same industry rather than across industries. SEE: How Buybacks Warps The Price-To-Book Ratio

PVH (NYSE:PVH) has risen 5.1% to hit a current price of $93.03 per share. So far today, 1.9 million shares of the company's stock have changed hands. This is more trading activity than there was yesterday. Volume is an important indicator because it indicates how significant a price shift is. Valuation ratios like 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 are useful in determining how attractive a potential or existing investment is. The dividend yield is measured by taking the annual dividends per share and dividing that number by the stock price. PVH's dividend yield of 0.2% is fairly low. This may indicate that the company's stock is overpriced. 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: Guide To Stock-Picking Strategies: Income Investing

Warnaco Group (NYSE:WRC) is currently trading at $50.50 per share, a 3.4% increase. At 221,306 shares, the company's volume so far today is consistent with its current three-month average. High volume indicates a lot of investor interest while low volume indicates the opposite. Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). WRC has a P/E ratio of 24.0, high compared to the industry average of 21.2. This could mean that the market is expecting big things over the next few months or years. 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: Investment Valuation Ratios: Price/Earnings Ratio

Increasing 3.1%, G-III Apparel (Nasdaq:GIII) is trading at $31.45 per share. So far today, the company's volume is 51,274 shares. Volume is used to evaluate how meaningful the price movement of a stock is. Valuation ratios allow the investor to make a quick determination as to a company's investment value. The debt ratio is calculated by dividing total liabilities by total assets. GIII has a debt ratio of 32.3%, which is fairly low. 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.

Under Armour (NYSE:UA) has increased to a share price of $57.15, a 2.9% rise. So far today, the company's volume is 706,790 shares, consistent with its current daily average. 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. 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/sales ratio measures a company's stock market price by its revenues. UA's P/S ratio of 2.71 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.

Nortek (Nasdaq:NTK) is trading at $51.85 per share, down 2.4%. The company's volume is currently 4,938 shares. In technical analysis, trading volume is used to determine the strength of a market indicator. 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 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. NTK has a high capitalization ratio of 91.8%. A company considered too highly leveraged (too much debt) may find its freedom of action restricted by its creditors and/or have its profitability hurt by high interest costs. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.

NIKE (NYSE:NKE) has moved up 2.3% and is currently trading at $98.66 per share. The company's volume for the day so far is 1.6 million shares, 0.7 times 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 debt-equity (D/E) ratio is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. The debt-equity ratio of 4% is relatively low. Companies with low D/E ratios are more attractive to investors because they are better able to protect their business interests in times of decline. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.

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. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.

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