Why Red Hat, Caesars Entertainment, and Exelixis Tumbled Today

Friday's gains for the stock market didn't extend to these stocks. Find out what left these companies behind today.

Mar 28, 2014 at 8:30PM

Favorable economic news helped send the stock market higher despite the usual pre-weekend jitters on Wall Street, as larger gains earlier in the day gave way to traders once again choosing not to hold onto positions in light of geopolitical uncertainties and other risks. Yet, even though major indexes hung onto modest gains, Red Hat (NYSE:RHT), Caesars Entertainment (NASDAQ:CZR), and Exelixis (NASDAQ:EXEL) fell sharply on the day.

Red Hat dropped 7% despite reasonably encouraging quarterly results. Revenue growth of 15% led to year-over-year gains in adjusted earnings, and the balances on its deferred revenue arrangements tied to its long-term contracts jumped by 18%. Yet, even as subscriptions rose, Red Hat expects adjusted earnings for the current fiscal year to come in around 5% below what investors had wanted to see, with guidance for a 14% jump in revenue proving insufficient to satisfy shareholders. With intense competition for its Linux operating system, Red Hat's efforts to maintain its market share and invest in future-looking initiatives could hurt operating margins, and that has some investors nervous about whether Red Hat can successfully keep its rivals at bay.


Caesars declined more than 7% after reporting that it would sell seven million shares of common stock, hoping to raise between $130 million and $140 million in order to help finance its operations. With major investors Apollo Global Management (NYSE:APO) and TPG Capital guiding the company, Caesars said that it would close its Harrah's Tunica casino in Mississippi because of poor sales, and conditions on the Las Vegas strip have been poor, as well. Without the exposure to the fast-growing gaming market in Macau that most of its rivals have, Caesars faces billions in debt, and credit-default swaps are priced at levels that reflect a high probability of future default on bonds -- let alone possible returns on stock.

Exelixis plunged another 12%, extending its losses from earlier in the week after failing to hit a home run with its study of prostate-cancer treatment cabozantinib. The drop in Exelixis stock might seem unwarranted given that the only news from the study was that an independent committee recommended that it continue to its natural conclusion rather than stopping early. The problem, though, is that Medivation (NASDAQ:MDVN), Johnson & Johnson, and Bayer all were so promising that they had their late-stage studies conclude early, and so Exelixis investors got their hopes up that cabozantinib would work out the same way. The news isn't fatal to Exelixis' hopes, but it does raise concerns about whether the drug's efficacy will match up to its rivals.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Exelixis. The Motley Fool owns shares of Exelixis. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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