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Tickers in this Article: MRX, VRX, QCOR, ISIS, ACHC, MDVN, THRX
The market is currently down, with the Nasdaq slipping 0.8%, the S&P 500 down 0.6% and the Dow declining 0.8%. The healthcare sector is the category of stocks relating to medical and healthcare goods or services. This sector includes hospital management firms, health maintenance organizations (HMOs), biotechnology and a variety of medical products. Stocks in the healthcare sector are often considered to be defensive because the products and services are essential. Even during economic downturns, people will still require medical aid and medicine to overcome illness. Having a consistent demand for goods and services makes this sector less sensitive to business cycle fluctuations.

The Healthcare sector (XLV) is down 0.3%, outperforming the market overall. Currently, the biggest movers in the sector are:
CompanyMarket CapPercentage Change
Medicis (NYSE:MRX)$1.89 billion+38%
Valeant Pharmaceuticals Int (NYSE:VRX)$15.28 billion+15.1%
Questcor Pharmaceuticals (Nasdaq:QCOR)$2.59 billion+9.2%
ISIS Pharmaceuticals (Nasdaq:ISIS)$1.37 billion+8.6%
Acadia Healthcare Company (Nasdaq:ACHC)$800.4 million+5.2%
Medivation (Nasdaq:MDVN)$3.86 billion+5%
Theravance (Nasdaq:THRX)$2.58 billion-3.9%
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Medicis (NYSE:MRX) has soared 38% to reach a current price of $43.55 per share. At 26 million shares, the company's volume so far today is 23.5 times the average daily volume. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. As with most ratios, comparisons of company price/earnings to growth ratios (PEG ratios) are most appropriate for similar companies. MRX has a PEG ratio of 1.96, 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.

Valeant Pharmaceuticals Int (NYSE:VRX) rose a significant 15.1% to reach $59 per share. So far today, 7.9 million shares have changed hands. 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. 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. If the price/book value ratio of a stock is high, it may indicate that the stock is expensive, while a lower ratio may indicate that the stock is a bargain. The P/B ratio for VRX is 4.76, indicating that the stock is trading for more than its book value. This may be a sign that the company is overvalued. 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

Increasing 9.2%, Questcor Pharmaceuticals (Nasdaq:QCOR) is trading at $47.44 per share. So far today, the company's volume is 3.2 million shares, 2.8 times its average over the past three months. If a stock price moves on high volume, this means that the change is a significant one. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The debt ratio is calculated by dividing total liabilities by total assets. QCOR has a low debt ratio of 35.1%. In other words, the company is less sensitive to changes in business or interest rates since less of its cash flow is dedicated to paying off loan expenses. 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.

ISIS Pharmaceuticals (Nasdaq:ISIS) has risen 8.6% and is currently trading at $14.79 per share. So far today, the company's volume is 1.6 million shares. This is more trading activity than there was yesterday. Volume indicates the level of interest that investors have in a company at its current price. 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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. The P/S ratio for ISIS is a high 9.76. This could be a good sign if the share price increases. 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.

Acadia Healthcare Company (Nasdaq:ACHC) has increased to a share price of $20.17, a 5.2% rise. So far today, the company's volume is 196,371 shares, 1.8 times its current daily average. If a stock price makes a big move up or down, volume lets us know the significance of that move. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. ACHC's capitalization ratio of 53.9% is relatively high. A high capitalization ratio is not necessarily bad since higher financial leverage can increase the return on a shareholder's investment. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.

Medivation (Nasdaq:MDVN) has risen 5% to hit a current price of $110.08 per share. The company's volume for the day so far is 1.3 million shares. Volume is an important indicator in technical analysis as it is used to measure the worth of a market move. If the markets have made a strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. 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. MDVN's P/B ratio of 48.71 shows that its share price is higher than its book value. This implies that investors expect management to create more value from a given set of assets and/or that the market value of the firm's assets is significantly higher than their accounting value. One problem with the P/B value ratio is that it can be difficult to calculate the true book value of a company, so investors should be aware that many measures of book value may provide only a rough estimate, and should be taken with a grain of salt. SEE: Using The Price-To-Book Ratio To Evaluate Companies

At $25.64, Theravance (Nasdaq:THRX) has slipped 3.9%. At 309,147 shares, the company's volume so far today is 0.8 times the current three-month average. As a stock moves up or down, it is important to pay attention to the trading volume. This indicates the level of interest: the higher the volume, the more the interest. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. 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 THRX is 91%. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.

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.

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