The market is currently up, with the Nasdaq moving up 1.1%, the S&P 500 rising 0.3% and the Dow climbing 0.3%. The financial sector is the category of stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate. Financial services perform best in low interest rate environments. A large portion of this sector generates revenue from mortgages and loans, which gain value as interest rates drop. Furthermore, when the business cycle is in an upswing, the financial sector benefits from additional investments. Improved economic conditions usually lead to more capital projects and increased personal investing. New projects require financing, which usually leads to a larger number of loans.
The Financial sector (XLF) 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|
|Cohen & Steers, Inc. (NYSE:CNS)||$1.6 billion||-7.1%|
|The Hanover Insurance Group, Inc. (NYSE:THG)||$1.75 billion||-5.1%|
|Capital One Financial (NYSE:COF)||$31.86 billion||+4.8%|
|MarketAxess Holdings Inc. (Nasdaq:MKTX)||$1.07 billion||+4.1%|
|UnitedHealth Group (NYSE:UNH)||$58.46 billion||-3.7%|
|American Express (NYSE:AXP)||$67.09 billion||-3.6%|
|RLI Corp. (NYSE:RLI)||$1.49 billion||-3.4%|
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Cohen & Steers (NYSE:CNS) has decreased to $33.92 per share, a 7.1% fall. So far today, 71,207 shares of the company's stock have changed hands. Yesterday, 188,238 shares changed hands. The trading volume for a stock indicates the level of investor interest. 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/book value ratio is one of the more common methods of determining whether a stock is fairly valued. The P/B ratio for CNS is 6.11, 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 value comparisons should be made among companies in the same industry rather than across industries. SEE: How Buybacks Warps The Price-To-Book Ratio
Hanover Insurance Group (NYSE:THG) is currently trading at a share price of $36.90, a 5.1% decline. So far today, the company's volume is 361,020 shares, 2.1 times the current daily average. In technical analysis, trading volume is used to determine the strength of a market indicator. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. The debt-equity ratio of 36% is relatively low. This shows that the company's assets are financed primarily through equity. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.
Capital One (NYSE:COF) is up 4.8% to reach a current price of $57.51 per share. The company is currently trading a volume of 5.8 million shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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. 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. COF's capitalization ratio is 35.3%. 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.
MarketAxess Holdings (Nasdaq:MKTX) has moved up 4.1% and is currently trading at $30.48 per share. The company's volume is currently 152,990 shares for the day, 0.8 times the average volume over the last three months. High volume indicates a lot of investor interest while low volume indicates the opposite. 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. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). MKTX's P/E ratio of 22.6 is above the industry average of 16.23. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. 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: How To Use The P/E Ratio And PEG To Tell The Future Of A Stock
After a decline of 3.7%, UnitedHealth (NYSE:UNH) has hit a share price of $54.24. So far today, the company's volume is 8.2 million shares. This is more trading activity than there was yesterday. A stock's volume conveys how excited investors are about it. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The price/earnings to growth (PEG) ratio can reveal value what price/earnings (P/E) ratios alone may not so that if a company has a high P/E ratio (an indication that its stock is overpriced) but its earnings are growing very quickly, the PEG ratio may reveal that the company is actually fairly valued, or perhaps even a bargain. UNH has a PEG ratio of 1.11, which is consistent with the industry average. 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.
American (NYSE:AXP) is down 3.6% to reach $56.22 per share. The company's volume is currently 7.4 million shares for the day, 1.5 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 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. AXP has a high debt ratio of 86.8%. As such, the company is highly leveraged and not highly liquid. 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.
Currently trading at $68.04 per share, RLI (NYSE:RLI) has fallen 3.4%. This morning, the company is trading a volume of 64,044 shares. If a stock price makes a big move up or down, volume lets us know the significance of that move. 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 measures the income that a stock will generate for an investor. RLI has a low dividend yield of 1.8%. If you are an income investor, this stock may not be attractive to you. 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: Investment Valuation Ratios: Dividend Yield
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. 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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