The morning has been bad for the market. The Nasdaq has decreased 0.1%; the S&P 500 has declined 0.2%; and the Dow is down 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.
Despite a bad day for the market overall so far, the Basic Materials sector (XLB) is up 0.3% and its biggest movers are currently:
|Company||Market Cap||Percentage Change|
|Koppers Holdings Inc. (NYSE:KOP)||$715.9 million||-13.6%|
|OM Group, Inc. (NYSE:OMG)||$572.7 million||-6.5%|
|LSB Industries, Inc. (NYSE:LXU)||$758.4 million||+6.5%|
|Innospec Inc. (Nasdaq:IOSP)||$729.7 million||-4.7%|
|Teck Resources Limited (NYSE:TCK)||$16.58 billion||+3.6%|
|CVR Partners LP (NYSE:UAN)||$1.8 billion||+3.5%|
|Randgold Resources Ltd. (ADR) (Nasdaq:GOLD)||$8.7 billion||+3.2%|
Broker Summary: Fidelity Online Brokerage
Taking a 13.6% hit, Koppers Holdings (NYSE:KOP) is currently trading at $29.79 per share. So far today, 128,713 shares have changed hands. The trading volume for a stock indicates the level of investor interest. 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 capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. KOP has a capitalization ratio of 73.6%, which is on the high end. 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. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
After a decline of 6.5%, OM Group (NYSE:OMG) has hit a share price of $16.53. With 433,581 shares changing hands so far today, the company's volume is 1.2 times the current three-month average. If a stock price moves on high volume, this means that the change is a significant one. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. The P/B ratio for OMG is 0.42 because the stock is trading for less than its book value. This could mean that either the market believes the asset value is overstated, or the company is earning a very poor (even negative) return on its assets. 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: Using The Price-To-Book Ratio To Evaluate Companies
Increasing 6.5%, LSB Industries (NYSE:LXU) is trading at $36.14 per share. The company is trading at a volume of 158,624 shares. Volume is an important indicator because it indicates how significant a price 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. A price/sales ratio is derived by dividing stock market price by company sales. The P/S ratio for LXU is 1.06, which is relatively high. 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.
Innospec (Nasdaq:IOSP) is down 4.7% to reach $30.14 per share. So far today, the company's volume is 91,594 shares, 1.9 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 estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The debt ratio shows the proportion of assets that a company is financing through debt. The debt ratio for IOSP is a low 37.7%. A low debt ratio means the company has more available cash flow. 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.
Teck (NYSE:TCK) has risen 3.6% to hit a current price of $29.78 per share. So far today, the company's volume is 892,160 shares. Volume is used to evaluate how meaningful the price movement of a stock is. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The price/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). TCK has a P/E ratio of 8.8. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: Investment Valuation Ratios: Price/Earnings Ratio
CVR (NYSE:UAN) has risen 3.5% and is currently trading at $25.49 per share. So far today, the company's volume is 184,115 shares, 0.8 times its average over the past three months. If a stock price makes a big move up or down, volume lets us know the significance of that move. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. 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. UAN has a low capitalization ratio of 20.8%. A very low capitalization ratio might be a sign that the company is stagnating and reducing the potential earnings for shareholders. This ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into the use of leverage by a company.
Randgold Resources Ltd (Nasdaq:GOLD) is currently trading at $97.76 per share, a 3.2% increase. The company's volume for the day so far is 329,241 shares. Volume indicates the level of interest that investors have in a company at its current price. 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 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. PEG ratio for GOLD is 2.26. 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 The nature of the market is such that stocks will have good days and bad days. It is important to weigh current activity against historical performance when making any investment decisions. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.
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