Why Transocean, Rite Aid, and New Gold Slumped Today

By Dan Caplinger Markets Fool.com

The stock market lost ground on Monday, sending major market benchmarks lower by more than half a percentage point. The Dow lost its grip on the 20,000 mark in the wake of concerns about economic growth and new U.S. immigration policy, and some believe that the broader geopolitical climate could have a negative impact on global commerce that in turn could start affecting multinational corporations' business prospects. In addition, bad news from some individual companies weighed on the markets, and Transocean (NYSE: RIG), Rite Aid (NYSE: RAD), and New Gold (NYSEMKT: NGD) were among the worst performers on the day. Below, we'll look more closely at these stocks to tell you why they did so poorly.

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Image source: Transocean.

Transocean sinks

Transocean fell 7% on a tough day for offshore drillers. The energy markets were relatively stable, with crude oil prices falling by just 1% and staying well above the $50 per barrel mark. Yet gains of 50% to 60% for Transocean stock since the election seemed to reflect a substantial expectation that crude prices would recover even more sharply in 2017, and investors appear not to be quite as certain now that such a strong rebound will take shape as quickly as originally thought. The big question that's still unresolved is whether Transocean and its offshore drilling peers have gotten ahead of themselves, or whether $50 oil is enough to motivate exploration and production specialists to enter new contracts for drilling rigs. Time will tell, but for now, Transocean investors are erring on the side of caution.

Rite Aid agrees to a price cut

Rite Aid fell another 17%, adding to its huge losses as investors have become even more skeptical that the drugstore chain's merger with Walgreens Boots Alliance (NASDAQ: WBA) will actually happen. Rite Aid and Walgreens actually agreed to extend the date for final approval another six months to July 31, but the real news was that Walgreens reduced the amount of money it was willing to pay for the chain. Now, Rite Aid shareholders will only get $7 per share at the most, and that only if Walgreens is able to do the merger while selling no more than 1,000 stores. The price could fall to $6.50 per share if regulators require divesting 1,200 stores or more. Even after the reduction in the offering price, the fact that Rite Aid trades 12% to 18% below the new offer shows ongoing doubt about whether the deal will ever get regulatory approval.

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New Gold tarnishes

Finally, New Gold plunged, losing a quarter of its value. The gold miner announced operating results for the fourth quarter and 2016 full year, which included total gold production of almost 381,700 ounces. That was close to the middle of the range that New Gold had projected, and all-in sustaining costs of $692 per ounce were comfortably below the current price of gold and most of the company's peers. Moreover, New Gold said it expects 2017 production of 380,000 to 430,000 ounces, but a rise in all-in sustaining costs to $825 to $865 per ounce seemed to spook cost-conscious investors. Moreover, with a three-month delay now expected at its Rainy River project, investors are nervous about whether New Gold will be able to achieve its full potential. Moreover, the company believes that greater capital expenditures will be necessary compared to what it initially expected. With the future of the precious metals markets remaining uncertain, the last thing anyone wants to hear from a mining company is concern about operational issues.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.