The Nasdaq is up 0.8%, the S&P 500 has risen 0.8% and the Dow has climbed 0.9%, marking a bad morning for the market. The utilities sector is a category of stocks for utilities such as gas and power. It contains companies such as electric, gas and water firms and integrated providers. Because utilities require significant infrastructure, these firms often carry large amounts of debt. With a high debt load, utilities companies become sensitive to changes in the interest rate. As interest rates rise or drop, the debt payments will increase or decrease. The utilities sector performs best when interest rates are falling or remain low.
The Utilities sector (XLU) 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|
|Centrais Eletricas Brasileiras SA (NYSE:EBR)||$9.4 billion||-5.6%|
|Companhia Energetica Minas Gerais (NYSE:CIG)||$12.17 billion||-3.8%|
|Companhia de Saneamento Basico (NYSE:SBS)||$9.87 billion||-3.7%|
|Companhia Paranaense de Energia (NYSE:ELP)||$5.06 billion||-3.4%|
|Ormat Technologies (NYSE:ORA)||$884.1 million||-1.8%|
|Spectra (NYSE:SE)||$18.62 billion||-1.4%|
|UniSource (NYSE:UNS)||$1.67 billion||-1.2%|
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Centrais Eletricas Brasileiras SA (NYSE:EBR) has decreased to $6.56 per share, a 5.6% fall. This morning, the company is trading a volume of 1.7 million shares. The trading volume for a stock indicates the level of investor interest. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. EBR's D/E ratio is 65%. 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.
Currently trading at $17.17 per share, Companhia Energetica Minas Gerais (NYSE:CIG) has fallen 3.8%. The company's volume is currently 2.6 million shares for the day, which is more trading activity than there was yesterday. Volume is used to evaluate how meaningful the price movement of a stock is. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. One of the favorite tools of many value investors is analyzing price/book value ratios, as it provides a measure of the underlying value of a company's assets as compared to the valuation of its equity. The P/B ratio for CIG is 2.29, 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. P/B has its shortcomings but is still widely used as a valuation metric, more relevant for use by investors looking at capital-intensive or finance-related businesses, such as banks; book value does not carry much meaning for service-based firms with few tangible assets. SEE: How Buybacks Warps The Price-To-Book Ratio
Companhia de Saneamento Basico (NYSE:SBS) is currently trading at a share price of $83.48, a 3.7% decline. The company's volume for the day so far is 405,199 shares. This is 1.8 times the current three-month average. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. 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. SBS' dividend yield is 2.4%. A higher dividend yield may indicate a risk of a fall in the price of the security, or a cut in the level of dividend payments, either of which would have the effect of dropping future returns. SEE: Dividend Yield For The Downturn
After a decline of 3.4%, Companhia Paranaense de Energia (NYSE:ELP) has hit a share price of $17.87. At 432,792 shares, the company's volume so far today is 0.8 times the current daily average. A stock's volume conveys how excited investors are about it. 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. There are generally two price/earnings ratios calculated: the first, called the trailing Price/Earnings ratio, is calculated using the previous years actual earnings; the second, called forward Price/Earnings ratio, is calculated using the next year's estimated earnings. ELP's P/E ratio of 6.8 is under the industry average of 8.93. 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: Can Investors Trust the P/E Ratio?
Falling 1.8%, Ormat Technologies (NYSE:ORA) is currently at a share price of $19.10. So far today, the company's volume is 32,856 shares. 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. The debt ratio is calculated by dividing total liabilities by total assets. ORA has a debt ratio of 60.1%, which is on the high side. As such, the company is highly leveraged and not highly liquid. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Spectra (NYSE:SE) is down 1.4% to reach $28.13 per share. This morning, 1.4 million shares have been traded,. If a stock price makes a big move up or down, volume lets us know the significance of that move. Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The price/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. SE's P/S ratio of 3.64 is on the high side. 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.
At $40.05, UniSource (NYSE:UNS) has slipped 1.2%. So far today, the company's volume is 72,606 shares. This is 0.4 times the average volume over the last three months. 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. 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. A company's capitalization (not to be confused with its market capitalization) is the term used to describe the makeup of a company's permanent or long-term capital, which consists of both long-term debt and shareholders' equity. UNS has a high capitalization ratio of 57.2%. 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.
The Bottom Line The nature of the market is such that stocks will have good days and bad days. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. Keep in mind that all these ratios should be compared against historical numbers and industry information in order to get a more complete picture.