The market is currently up, with the Nasdaq climbing 1%, the S&P 500 rising 0.5% and the Dow up 0.6%. 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.
The Healthcare sector (XLV) is relatively unchanged on a good day for the market overall. So far, the biggest movers in the sector are:
|Company||Market Cap||Percentage Change|
|ISIS Pharmaceuticals, Inc. (Nasdaq:ISIS)||$1.21 billion||+11.2%|
|HCA Holdings (NYSE:HCA)||$11.67 billion||-7.7%|
|Questcor Pharmaceuticals, Inc. (Nasdaq:QCOR)||$2.1 billion||+5.6%|
|Amarin Corporation plc (ADR) (Nasdaq:AMRN)||$1.65 billion||-5.4%|
|Vertex Pharmaceuticals Incorporated (Nasdaq:VRTX)||$10.41 billion||+5.3%|
|Warner Chilcott Plc (Nasdaq:WCRX)||$4.35 billion||-4.1%|
|United Therapeutics Corporation (Nasdaq:UTHR)||$2.79 billion||+2.8%|
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ISIS Pharmaceuticals (Nasdaq:ISIS) rose a significant 11.2% to reach $13.43 per share. This morning, 666,783 shares have been traded, which is more trading activity than there was yesterday. 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 allow the investor to make a quick determination as to a company's investment value. The price/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. The P/B ratio for ISIS is 8.89, indicating that the stock is trading for more 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. 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: Investment Valuation Ratios: Price/Book Value Ratio
Falling 7.7%, HCA (NYSE:HCA) is currently at a share price of $24.55. The company's volume for the day so far is 6.4 million shares. High volume indicates a lot of investor interest while low volume indicates the opposite. Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The price/sales ratio measures a company's stock market value by its total revenues or alternatively, a company's price per share by its revenue per share. HCA's P/S ratio of 0.34 is fairly 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. 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.
Questcor Pharmaceuticals (Nasdaq:QCOR) is up 5.6% to reach a current price of $37.16 per share. The company's volume for the day so far is 963,603 shares, 0.3 times the current three-month average. Volume is used to evaluate how meaningful the price movement of a stock is. 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 ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. QCOR has a debt ratio of 35.1%, which is fairly low. A low debt ratio means the company has more available cash flow. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Amarin Corporation plc (Nasdaq:AMRN) is down 5.4% to reach $11.28 per share. So far today, the company's volume is 4.3 million shares. This is in keeping 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. Perhaps one of the most widely-used stock analysis tools is the price-to-earnings ratio, or P/E. AMRN's P/E ratio of 7.0 is under the industry average of 11.52. A low P/E ratio may indicate that the market expects relatively slower earnings growth. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: The P/E Ratio: A Good Market-Timing Indicator
Rising 5.3%, Vertex Pharmaceuticals (Nasdaq:VRTX) is currently trading at $51.93 per share. So far today, 655,777 shares have changed hands, lighter than yesterday's volume of 3.2 million shares. If a stock price makes a big move up or down, volume lets us know the significance of that move. 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 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. PEG ratio for VRTX is 1.36. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
At $16.68, Warner (Nasdaq:WCRX) has slipped 4.1%. This morning, the company is trading a volume of 1.7 million 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. 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. WCRX has a P/B ratio of 24.9 which shows that its share price is higher than its book value. This high share price relative to asset value is likely to indicate that the company has been earning a very high return on its assets. To put things in perspective, should be made among companies in the same industry rather than across industries. SEE: Using The Price-To-Book Ratio To Evaluate Companies
United (Nasdaq:UTHR) has risen 2.8% to hit a current price of $55.54 per share. At 173,540 shares, the company's volume so far today is 0.2 times its average over the past three months. Volume indicates the level of interest that investors have in a company at its current price. Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. The P/S ratio for UTHR is 3.09, which is relatively high. This could be a good sign if the share price increases. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. 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.