Despite the encouraging new-home sales report posted Wednesday morning, ongoing concerns stemming from Belgium’s terrorist attack, mixed results on Tuesday’s primary elections, and the sheer fact that stocks remain overbought after a big runup from early-February lows meant the market lost the battle today. The S&P 500 closed at 2036.71, down 0.64%.
It could have been worse, however, and for owners of Freeport-McMoRan Inc (NYSE:FCX), Gilead Sciences, Inc. (NASDAQ:GILD) and Tesla Motors Inc (NASDAQ:TSLA), it was worse.
Here’s why.
Freeport-McMoRan Inc (FCX)
Don’t look for a company-specific reason Freeport-McMoRan shares were down more than 11% on Wednesday — you won’t find one. The setback was spurred almost entirely by a bearish move for the bride of the stock market and an even more alarming move lower from commodities like gold and crude oil … both of which are instrumental to the value of FCX. Gold lost a little more than 2% of its value today, while crude oil fell almost 4%.
With Freeport-McMoRan being in dire straits already, having recently been forced to sell assets just to stay afloat, it doesn’t take much to tip the scales against FCX. Today was simply one of those days the company was in the wrong business at the wrong time.
FCX had plenty of commodity company in the gutter today, too. Vale SA (ADR) (NYSE:VALE) fell 9%, while Newmont Mining Corp (NYSE:NEM) finished the day down nearly 9% as well.
Gilead Sciences, Inc. (GILD)
Gilead Sciences was delivered some bad news on Tuesday afternoon. After a long legal battle, a judge and jury have finally decided that the molecular formula of its popular hepatitis C drug Sovaldi was actually patented by rivals Merck & Co., Inc. (NYSE:MRK) and Ionis Pharmaceuticals Inc (NASDAQ:IONS) nearly two decades ago. As such, Merck and Ionis Pharmaceuticals are owed royalty payments for past and future sales of Sovaldi.
The specific royalty rate has yet to be decided. Merck was asking for 10%, but it’s unlikely it will be awarded such an unusually high reward. GILD likely plans to appeal the ruling regardless of whatever royalty figure the court comes up with.
Although the exact royalty figure has yet to be decided, Citigroup analysts Andrew Baum and Peter Verdult think the court victory translates into $2 worth of incremental value per share of MRK, and reduces the value of GILD by about $3 per share.
GILD finished the day down nearly 4%.
Tesla Motors Inc (TSLA)
Continuing to feel the weight of its recent 60% run up from February’s lows, Tesla Motors followed through on Tuesday with an even bigger 5% loss today.
Granted, the bears had a little help tipping TSLA over on Wednesday from this Barron’s article, which asked “Tesla Motors: Time to Sell?” and then unequivocally answered with a resounding “Yes!” by virtue of a downgrade to a “Sell” rating.
S&P Global Market Intelligence analyst Efraim Levy explains:
“With Tesla above our $155 target, we lower our opinion on these volatile shares to Sell. The shares have rallied sharply recently in anticipation of the Model 3 reveal later this month and amid bullish comments from some equity analysts. While we expect sales and EPS to surge in ’16, we see significant execution and valuation risk in the premium priced stock.”
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
