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Tickers in this Article: GSM, CLF, AVD, RS, SCHN, SQM, HAYN
On a bad day for the market, the Nasdaq is trading down 0.2%, the S&P 500 has slipped 0.2% and the Dow has decreased 0.2%. The basic materials sector is the category of stocks that accounts for companies involved with the discovery, development and processing of raw materials. This sector includes the mining and refining of metals, chemical producers and forestry products. The basic materials sector is sensitive to changes in the business cycle. Because the sector supplies materials for construction, it depends on a strong economy. This sector is also sensitive to supply and demand fluctuations because the price of raw materials, such as gold or other metals, is largely demand driven.

The Basic Materials sector (XLB) is down 1%, underperforming the market overall. The current biggest movers in the sector are:
CompanyMarket CapPercentage Change
Globe Specialty Metals (Nasdaq:GSM)$1.28 billion-6.9%
Cliffs Natural Resources (NYSE:CLF)$6.49 billion-6.4%
American (NYSE:AVD)$865.9 million+5.5%
Reliance Steel (NYSE:RS)$4.34 billion-4.4%
Schnitzer Steel Industries (Nasdaq:SCHN)$843.3 million-4.4%
Sociedad Quimica y Minera (NYSE:SQM)$16.42 billion+4.2%
Haynes International (Nasdaq:HAYN)$706.5 million-2.5%
Broker Summary: E-Trade Financial

Globe Specialty Metals (Nasdaq:GSM) is trading at $15.86 per share, down 6.9%. So far today, the company's volume is 302,717 shares. If a stock price moves on high volume, this means that the change is a significant one. 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 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. GSM's debt-equity ratio of 28% is on the low end. 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. This easy-to-calculate ratio provides a general indication of a company's equity-liability relationship and is helpful to investors looking for a quick take on a company's leverage.

Cliffs Natural Resources (NYSE:CLF) is down 6.4% to reach $42.64 per share. So far today, the company's volume is 6.7 million shares, in keeping with its current three-month average. Volume is an important indicator because it indicates how significant a price shift is. Valuation ratios allow the investor to make a quick determination as to a company's investment value. The price/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). Relative to the industry P/E ratio of 6.3, CLF's 4.6 is low. Companies with low P/E ratios may find it easier to surprise the market to the upside, even if their financial performance is not as strong as that of companies with high P/E ratios. 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: Can Investors Trust the P/E Ratio?

Rising 5.5%, American (NYSE:AVD) is currently trading at $32.71 per share. This morning, the company's volume is 201,534 shares. This is 0.8 times its 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. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. 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. AVD has a low capitalization ratio of 16.6%. A low capitalization ratio can signify a failure to leverage equity into investment, missing valuable opportunities for growth and expansion. 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.

Reliance Steel (NYSE:RS) has decreased to $55.12 per share, a 4.4% fall. This morning, 346,431 shares have been traded, consistent with the volume from yesterday. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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/earnings to growth (PEG) ratio is calculated by dividing the price/earnings ratio by growth in earnings-per-share; the lower the PEG ratio, the more reasonably valued the security. RS' PEG ratio of 1.28 is in line with the industry average. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.

Currently trading at $30.08 per share, Schnitzer Steel Industries (Nasdaq:SCHN) has fallen 4.4%. The company is currently trading a volume of 260,839 shares. High volume indicates a lot of investor interest while low volume indicates the opposite. Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. SCHN has a P/B ratio of 0.73, which shows that its book value is higher than its share price. This is due to one of two possibilities: that the stock is being unfairly or incorrectly undervalued by investors because of some transitory circumstance and represents an attractive buying opportunity at a bargain price or that the market's low opinion and valuation of the company are correct, at least over the foreseeable future. To put things in perspective, should be made among companies in the same industry rather than across industries. SEE: Investment Valuation Ratios: Price/Book Value Ratio

Increasing 4.2%, Sociedad Quimica y Minera (NYSE:SQM) is trading at $65 per share. At 517,780 shares, the company's volume so far today is 1.4 times the current three-month average. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. For investors primarily interested in the income a stock can generate, the dividend yield is an important determinant of how attractive a stock is. SQM has a dividend yield of 0.8%, which is fairly low. If you are an income investor, this stock may not be attractive to you. To calculate the dividend yield, divide the level of dividends by the stock price; the higher the yield, the more attractive the security. SEE: Due Diligence On Dividends

Haynes International (Nasdaq:HAYN) is currently trading at a share price of $56.09, a 2.5% decline. The company's volume for the morning is 17,219 shares. This is 0.2 times the average daily volume. 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. 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. The P/S ratio for HAYN is a high 1.07. 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.

The Bottom Line The nature of the market is such that stocks will have good days and bad days. 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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