Visteon and Other Big Movers In Consumer Cyclical on September 19, 2012

By Investopedia Staff | September 19, 2012 AAA

The morning has been good for the market. The Nasdaq has risen 0.1%; the S&P 500 has increased 0.2%; and the Dow has moved up 0.3%. The consumer cyclical sector is a category of stocks that relies heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment and retail. The category can be further divided into durable and non-durable sections. Durable cyclicals include physical goods such as hardware or vehicles, while non-durables represent items like movies or hotel services. The performance of consumer cyclicals is highly related to the state of the economy. They represent goods and services that are not considered necessities, but luxurious purchases. During contractions or recessions, people have less disposable income to spend on consumer cyclicals. When the economy is expanding or booming, the sales of these goods rise as retail and leisure spending increase.

Outperforming the market overall, the Consumer Cyclical sector (XLY) is up 0.8% and its biggest movers so far today are:

Company Market Cap Percentage Change
Deckers (Nasdaq:DECK) $1.63 billion -8%
Visteon (NYSE:VC) $2.41 billion +4%
Shutterfly (Nasdaq:SFLY) $1.23 billion -3.3%
Warnaco Group (NYSE:WRC) $2.14 billion +2.9%
Sturm, Ruger (NYSE:RGR) $982.5 million -2.9%
iRobot (Nasdaq:IRBT) $703.5 million -2.7%
Brunswick (NYSE:BC) $2.18 billion -2.7%

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Falling 8%, Deckers (Nasdaq:DECK) is currently at a share price of $40.44. The company's volume for the day so far is 5.3 million shares. Yesterday, volume was only 3.4 million shares. 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. Understanding investment valuation ratios allows an investor to assess the true 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. DECK's P/B ratio of 2.08 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. Users need to be careful when applying this ratio though, as it is more useful for industrial companies that have a lot of tangible assets than it is for technology or consumer product companies that may not have much in the way of hard assets. SEE: Investment Valuation Ratios: Price/Book Value Ratio

Visteon (NYSE:VC) has risen 4% to hit a current price of $47.60 per share. At 621,492 shares, the company's volume so far today is 0.9 times its average over the past three months. Volume indicates the level of interest that investors have in a company at its current price. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The price/earnings to growth (PEG) ratio is calculated by dividing the price/earnings ratio by growth in earnings-per-share; the lower the PEG ratio, the more reasonably valued the security. PEG ratio for VC is 2.44. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.

Falling 3.3%, Shutterfly (Nasdaq:SFLY) is currently at a share price of $33.04. The company's volume for the day so far is 362,118 shares. The trading volume for a stock indicates the level of investor interest. 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 shows the proportion of assets that a company is financing through debt. SFLY has a debt ratio of 10.9%, which is fairly low. 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.

After an increase of 2.9%, Warnaco Group (NYSE:WRC) has reached a current price of $53.92. So far today, the company's volume is 307,613 shares, 0.7 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 can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. WRC's debt-equity ratio of 26% is on the low end. This shows that the company's assets are financed primarily through equity. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.

Sturm, Ruger (NYSE:RGR) has decreased to $49.80 per share, a 2.9% fall. The company is trading at a volume of 219,587 shares. This is on pace to reach yesterday's trading volume of 482,938 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. 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 price/sales ratio measures a company's stock market value by its total revenues or alternatively, a company's price per share by its revenue per share. RGR has a high P/S ratio of 1.9. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. 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.

After a decline of 2.7%, iRobot (Nasdaq:IRBT) has hit a share price of $24.81. The company's volume for the day so far is 110,955 shares, consistent with its average over the last three months. 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. 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. 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. IRBT's P/E ratio of 22.0 is above the industry average of 13.58. Usually, if a stock has a high P/E ratio, it indicates that the market expects the company to grow earnings quickly in the future. 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?

Brunswick (NYSE:BC) is trading at $23.75 per share, down 2.7%. The company is currently trading a volume of 600,708 shares. 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. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. BC has a capitalization ratio of 80.8%, 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. 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.

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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