Why Molycorp, Ubiquiti Networks, and Scientific Games Tumbled Today

Friday turned out to be a record-setting day for the stock market, but these three stocks took it on the chin. Find out why.

May 9, 2014 at 7:05PM

What started out looking like a quiet day on Wall Street turned out to be a positive end to a turbulent week, as the stock market posted gains that sent the Dow to a new all-time record high. But during much of the day, the market had been much less optimistic in its assessment of the future for stocks, and Molycorp (NYSE:MCP), Ubiquiti Networks (NASDAQ:UBNT), and Scientific Games (NASDAQ:SGMS) proved unable to climb back from their steep losses.

Molycorp dropped 18%, as an analyst downgrade piled on after the rare-earth miner's stock plummeted 14% yesterday in the wake of its first-quarter earnings. Even though shipment volumes rose by 10%, Molycorp's revenue fell 4% compared to the fourth quarter of 2013 due to ongoing pricing weakness in the rare-earth arena. Prices of rare-earth minerals have suffered for years now, and few investors see many signs that the unfavorable supply demand imbalance will resolve itself in the near future. As a result, the potential for Molycorp to have to do another in a series of secondary stock offerings to raise capital could weigh on the stock going forward.

Source: Molycorp.

Ubiquiti Networks plunged 24% in the aftermath of the communications and wireless networking specialist's fiscal third-quarter earnings report. Revenue growth of 78% led to net income more than doubling from year-ago levels, and earnings per share came in better than expected. Nevertheless, investors weren't impressed with Ubiquiti Networks' guidance, which included revenue projections that implied a big slowdown in sequential sales growth and roughly flat earnings. In addition, Ubiquiti boosted its inventory levels again this quarter, and even though the move was planned, some investors worry that the move degrades the quality of Ubiquiti's earnings. Analysts were mixed in their assessment of Ubiquiti Networks' performance, as one firm downgraded the stock, while another said that the stock-price plunge offered a buying opportunity.

Scientific Games fell 17% after the maker of lottery scratch tickets and provider of other lottery and gaming services reported a slower gain in revenue and a steeper net loss than investors had expected to see last night. Scientific Games said that the integration of its merger with WMS Industries continues apace, with strategic asset sales and cost-cutting measured meant to take advantage of synergy opportunities between the two companies, and hopefully produce as much as $100 million in annual savings by the end of next year. But instant-game revenue rose at just a 2.8% clip, with particular weakness in its international division. On that front, a lot will depend on whether Scientific Games' new three-year contract with the French National Lottery, and six-year contract to supply instant games for the state of Washington, will pay off with better results.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Ubiquiti Networks. 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.

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