Why Lorillard, Inc., Edwards Lifesciences Corp., and Peabody Energy Corp. Are Today’s 3 Worst Stocks

A potential merger shakes up the tobacco industry, while lawsuits and global energy trends send two more stocks spiraling lower.

May 22, 2014 at 8:31PM

All three U.S. indices finished higher on Thursday, as investors continued feeling good about what looks to be an extended period of low interest rates. Existing home sales also rose in April -- only the second time in the last nine months they've done so -- and China's manufacturing industry is looking the healthiest it has in five months. Alas, Lorillard (NYSE:LO), Edwards Lifesciences (NYSE:EW), and Peabody Energy (NYSE:BTU) didn't get the memo, finishing near the bottom of the stock market today. But the S&P 500 Index (SNPINDEX:^GSPC) managed to overcome these three laggard, adding 4 points, or 0.2%, to end at 1,892.


A glance at Lorillard's major brands. Source: Lorillard

Tobacco giant Lorillard was the day's worst performer, plunging 5% after a rally that sent the stock 10% higher yesterday. Although tobacco stocks usually exhibit very low volatility as the consistent, dividend-paying portfolio keystones that they are, every once in a while they become more volatile than a high school chemistry lab in the cartoon universe. Yesterday, Reuters reported that Reynolds American was in advanced talks to acquire Lorillard, and today Wells Fargo even put the probability of a deal going through at 90%. But after Wednesday's initial reports, Bloomberg has quoted insiders as saying an agreement could still be months away; in addition to that concern, U.S. regulators could also have antitrust problems with the deal.

Elsewhere, it was the settlement of a completed deal, not the speculation over a future one, which sent shares of Edwards Lifesciences tumbling 4.2% Thursday. The medical devices company will be remunerated to the tune of $1.1 billion by Medtronic,, which infringed on an artificial heart valve patent of Edwards Lifesciences'. Medtronic will pony up a lump-sum $750 million payment, then a minimum of $40 million annually until 2022, during which time the companies also agreed not to sue each other. What a good all-around deal for Edwards Lifesciences, no? No, Mr. Market said, it expected even more.

The last and least egregious of today's most egregious losers is Peabody Energy, which lost 3.1% today. There wasn't any major news on the company today, but zooming out from the day-by-day and week-by-week picture, investors don't seem to like the stock on the year-by-year time scale either. The stock's taken a 70% haircut in the last three years alone, and that may take some time to grow back. In 2011 Peabody grew sales by 17% annually and pulled in over $1 billion in net profit. Last year sales were down by 15% and it lost $300 million. Investors know a red flag when they see one, and Peabody is waving it like a matador at the moment. 

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John Divine has no position in any stocks mentioned. You can follow him on Twitter, @divinebizkid, and on Motley Fool CAPS, @TMFDivine.

The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. 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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