On a good day for the market, the Nasdaq is trading up 0.3%, the S&P 500 has increased 0.1% and the Dow has climbed 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 down 0.2% on a good day for the market overall. The biggest movers in the sector so far are:
|Company||Market Cap||Percentage Change|
|Pall (NYSE:PLL)||$6.76 billion||+7.4%|
|USG (NYSE:USG)||$2.52 billion||-4.7%|
|Spirit AeroSystems Holdings (NYSE:SPR)||$3.59 billion||-4%|
|Northrop Grumman (NYSE:NOC)||$16.79 billion||-3%|
|Kennametal (NYSE:KMT)||$3.15 billion||-2.3%|
|MSC Industrial Direct Co (NYSE:MSM)||$4.5 billion||-2.3%|
|BE Aerospace (Nasdaq:BEAV)||$4.14 billion||+2.3%|
Forex Broker Summary: Forex Capital Markets (FXCM)
Pall (NYSE:PLL) is at $62.47 per share after an increase of 7.4%. The company's volume for the day so far is 2.5 million shares. This is more trading activity than there was yesterday. 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 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 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. PLL's capitalization ratio is 22.7%, which is relatively low. Low leverage is a significant balance sheet strength, a sign of a less risky 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.
Currently trading at $22.41 per share, USG (NYSE:USG) has fallen 4.7%. So far today, the company's volume is 2.6 million shares, 0.9 times the average daily volume. 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. 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. The price/book value ratio is calculated by dividing the current stock price by the company's book value per share. USG's stock is trading for more than its book value with a P/B ratio of 20.37. 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. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: Investment Valuation Ratios: Price/Book Value Ratio
At $23.99, Spirit AeroSystems Holdings (NYSE:SPR) has slipped 4%. The company is currently trading a volume of 731,625 shares. A stock's volume conveys how excited investors are about it. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. SPR is in line with the industry average with a P/E ratio of 15.2. High P/E stocks could be "growth" stocks, while low PE stocks may be "value" stocks. SEE: How To Use The P/E Ratio And PEG To Tell The Future Of A Stock
Falling 3%, Northrop Grumman (NYSE:NOC) is currently at a share price of $65.91. With 1.1 million shares changing hands so far today, the company's volume is 0.8 times the current three-month average. Volume is an important indicator because it indicates how significant a price shift is. Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. NOC has a P/S ratio of 0.62, on the low end. The lower the P/S ratio, the more reasonably price the stock, all else being equal. It is important to keep in mind when looking at the P/S ratio that just because a company is generating revenues, this does not mean that the company is profitable, and in the long run, profits drive stock prices.
Slipping 2.3%, Kennametal (NYSE:KMT) is currently trading at $38.35 per share. The company is trading at a volume of 373,329 shares. In technical analysis, trading volume is used to determine the strength of a market indicator. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. 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 KMT is a low 45.8%. 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.
MSC Industrial Direct Co (NYSE:MSM) is currently trading at a share price of $70.15, a 2.3% decline. So far today, the company's volume is 140,802 shares, consistent with its current daily average. The trading volume for a stock indicates the level of investor interest. 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. 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. MSM's dividend yield of 1.4% 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
BE Aerospace (Nasdaq:BEAV) has increased to a share price of $40.75, a 2.3% rise. So far today, the company's volume is one million shares. Volume indicates the level of interest that investors have in a company at its current price. 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 assumption with high price/earnings stocks (generally of the growth variety) is that investors are willing to buy at a high price because they believe that the stock has significant growth potential, and the price/earnings to growth (PEG) ratio helps investors determine the degree of reliability of that growth assumption. BEAV's PEG ratio is 0.68. 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.
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. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.