The Nasdaq is trading down 0.2%, the S&P 500 has declined 0.3% and the Dow has slipped 0.4%, marking a bad morning for the market. 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 down 0.5%, underperforming the market overall. The current biggest movers in the sector are:
|Company||Market Cap||Percentage Change|
|Gafisa SA (ADR) (NYSE: GFA)||$519 million||+10%|
|CNH Global NV (ADR) (NYSE: CNH)||$9.43 billion||-3.3%|
|SPX Corporation (NYSE: SPW)||$3.58 billion||-2.6%|
|Joy Global Inc. (NYSE: JOY)||$6.15 billion||-2.2%|
|Lindsay Corporation (NYSE: LNN)||$741.2 million||-2.2%|
|MSC Industrial Direct Co Inc (NYSE: MSM)||$4.32 billion||-2%|
|The Middleby Corporation (Nasdaq: MIDD)||$1.87 billion||-1.9%|
Broker Summary: E-Trade Financial
Gafisa SA (NYSE: GFA) is currently trading at $2.64 per share, a 10% increase. The company's volume for the day so far is 1.6 million shares. This is 0.5 times the current three-month average. The trading volume for a stock indicates the level of investor interest.
Profit-margin ratios measure how much money a company squeezes from its total revenue or total sales. Investors can look at a company's gross profit margin, operating profit margin and net margin to understand a company's profitability. GFA has a low gross profit margin of 9.7%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. The operating margin ratio can also be useful for tracking an individual company's performance across time, where an increasing ratio is good and a declining ratio may provide cause for concern that a company's business model is weakening. GFA has an operating profit margin of 4%, which is low relative to its gross profit margin. While ratios such as price/earnings (P/E) or price/book value look at the relative attractiveness of a stock, the net profit margin ratio focuses on company performance rather that stock market valuation. The company has a negative net profit margin of -30%. A negative net profit margin means the company spent more money than it made.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. 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. GFA has a high capitalization ratio of 50.6%. If the company is a company is in a highly competitive business and hobbled by high debt, it will find its competitors taking advantage of its problems to grab more market share. 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.
Falling 3.3%, CNH Global NV (NYSE: CNH) is currently at a share price of $38.07. So far today, the company's volume is 78,156 shares, 0.2 times the average daily volume. Volume is an important indicator because it indicates how significant a price shift is.
Margin analysis is a great way to understand the profitability of companies. CNH has a low gross profit margin of 21.6%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Relative to its gross profit margin, CNH's operating profit margin of 7.3% and net profit margin of 5.6% are low.
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 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. The P/B ratio for CNH is 1.09, indicating that the stock is trading for more than its book value. This high share price relative to asset value is likely to indicate that the company has been earning a very high 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: Investment Valuation Ratios: Price/Book Value Ratio
At $68.91, SPX (NYSE: SPW) has slipped 2.6%. So far today, the company's volume is 98,462 shares. High volume indicates a lot of investor interest while low volume indicates the opposite.
Margin analysis tells us how effectively management can wring profits from sales and how much room a company has to withstand a downturn, fend off competition and make mistakes. The gross profit margin for SPW is 29%. All else being equal, investors should feel more confident investing in a company with a high operating margin than one with a low operating margin. SPW's operating profit margin is 1.4%. Because the business models of companies vary so widely, it can be difficult to compare net profit margin ratios for companies in different industries. Net margin is 3.2%.
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 measures the income that a stock will generate for an investor. The dividend yield for SPW is 1.4%, which is on the low end. A company with a low dividend yield may be a safer investment in the long run. High dividend yields are generally more important to value investors, investors in larger companies, and income oriented investors than they are to growth investors, investors in small cap stocks, and investors in new or emerging companies.
SEE: Dividend Yield For The Downturn
Joy Global (NYSE: JOY) is down 2.2% to reach $56.83 per share. At 452,980 shares, the company's volume so far today is lighter than yesterday's volume of 1.6 million shares. If a stock price moves on high volume, this means that the change is a significant one.
Calculating the profit margin is a great way to gain insight into aspects of how well a company generates and retains money. Instead of measuring how much managers earn from assets, equity or invested capital, profit-margin ratios measure how far a company stretches its total revenue or total sales. JOY has a gross profit margin of 35.9%. JOY's operating margin of 21.6% and net margin of 13.6% are low relative to its gross margin.
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. 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 JOY is 1.45, which is relatively high. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.
Lindsay (NYSE: LNN) has decreased to $57.03 per share, a 2.2% fall. This morning, the company is trading a volume of 16,880 shares. This is 0.2 times its current three-month average. If a stock price makes a big move up or down, volume lets us know the significance of that move.
Profit-margin ratios can give investors deeper insight into management efficiency than earnings alone can provide. Gross profit margin, operating profit margin and net margin are commonly used margins. The gross profit margin for LNN is 28.9%. Compared with its gross profit margin, LNN's operating profit margin of 14.3% and net profit margin of 7.1% are low.
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. As with most ratios, comparisons of company price/earnings to growth ratios (PEG ratios) are most appropriate for similar companies. LNN has a PEG ratio of 1.5, 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.
MSC Industrial Direct Co (NYSE: MSM) is trading at $66.93 per share, down 2%. The company's volume is currently 185,108 shares for the day, 0.3 times its current daily average. 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.
Margin ratios highlight companies that are worth further examination. MSM's gross profit margin is 47.8%. Operating margin provides a measure of a company's ability to pay its fixed costs such as interest on debt, particular if its business were to decline in the future. Operating profit margin for MSM is 17.1%. Net profit margin is calculated by dividing net income by sales; the higher the net profit margin, the better. The company's net profit margin is 11.1%.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. MSM has a debt ratio of 17.9%, 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. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
After a decline of 1.9%, Middleby (Nasdaq: MIDD) has hit a share price of $97.85. This morning, the company is trading a volume of 30,358 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 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.
Profit-margin ratios measure how much money a company squeezes from its total revenue or total sales. Investors can look at a company's gross profit margin, operating profit margin and net margin to understand a company's profitability. The gross profit margin for MIDD is 42.4%. Operating profit measures how much cash the business throws off, and some consider it a more reliable measure of profitability since it is harder to manipulate with accounting tricks than net earnings. MIDD has an operating profit margin of 16%. Net profit margin examines how effectively a company is managed and how profitable it is by looking at how much of each dollar in revenues ultimately hits the company's bottom line. The company has a net profit margin of 11.1%.
A company's value as an investment is more easily 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. A simple P/E ratio can reveal the stock's real market value and show how the valuation compares to its industry group or a benchmark like the S&P 500 Index. Compared to the industry average of 12.59, MIDD's P/E ratio of 18.5 is quite high. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap.
SEE: How To Use The P/E Ratio And PEG To Tell The Future Of A Stock
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. 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.