The market is having a bad day so far. The Nasdaq has fallen 0.6%; the S&P 500 is trading down 0.5%; and the Dow has declined 0.5%. 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 currently ahead of the overall market, down only 0.5%, and its biggest movers are currently:
|Company||Market Cap||Percentage Change|
|NACCO Industries (NYSE:NC)||$997.6 million||+3.1%|
|James Hardie Industries SE (NYSE:JHX)||$4.06 billion||-2.8%|
|Joy Global (NYSE:JOY)||$6.07 billion||-2.8%|
|Martin Marietta Materials (NYSE:MLM)||$3.9 billion||-2.4%|
|Tenaris S.A (NYSE:TS)||$24.68 billion||-2.3%|
|Pentair (NYSE:PNR)||$4.3 billion||+2.2%|
|National Presto Industries (NYSE:NPK)||$513 million||-2.1%|
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NACCO Industries (NYSE:NC) has increased to a share price of $122.61, a 3.1% rise. The company's volume for the day so far is 22,174 shares. If a stock price makes a big move up or down, volume lets us know the significance of that 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. 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. NC's dividend yield of 1.8% is fairly low. This could indicate that that the stock is overpriced or that future dividends might be higher. A stock's dividend yield depends on the nature of a company's business, its posture in the marketplace (value or growth oriented), its earnings and cash flow, and its dividend policy. SEE: Investment Valuation Ratios: Dividend Yield
James Hardie Industries SE (NYSE:JHX) is currently trading at a share price of $45.12, a 2.8% decline. At 3,422 shares, the company's volume so far today is 0.6 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/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. JHX's P/S ratio of 2.85 is on the high side. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. 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.
Joy Global (NYSE:JOY) has decreased to $55.75 per share, a 2.8% fall. The company is currently trading a volume of 1.5 million shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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. JOY's P/E ratio of 8.3 falls below the industry average of 11.25. 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. 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
Martin Marietta Materials (NYSE:MLM) is down 2.4% to reach $83.11 per share. The company's volume for the day so far is 344,859 shares, consistent with its current three-month average. A stock's volume conveys how excited investors are about it. Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. To a large degree, the debt-equity (D/E) ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. The D/E ratio for MLM is 81%. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
After a decline of 2.3%, Tenaris S.A (NYSE:TS) has hit a share price of $40.83. So far today, the company's volume is 350,117 shares. This is on pace to reach yesterday's trading volume of 768,938 shares. Volume indicates the level of interest that investors have in a company at its current price. 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 capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. TS' capitalization ratio is 5.9%, which is relatively low. Investors generally consider a company with low debt and high equity levels is a good quality 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.
Pentair (NYSE:PNR) is up 2.2% to reach a current price of $44.34 per share. At 3.1 million shares, the company's volume so far today is 1.2 times its current daily average. If a stock price moves on high volume, this means that the change is a significant one. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. PNR's debt ratio is 56.4%. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
National Presto Industries (NYSE:NPK) has fallen 2.1% and is currently trading at $72.98 per share. The company's volume for the day so far is 5,187 shares. The trading volume for a stock indicates the level of investor interest. 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. 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. NPK's stock is trading for more than its book value with a P/B ratio of 1.6. 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: Investment Valuation Ratios: Price/Book Value Ratio
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. 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.