Why MannKind, Rackspace Hosting, and Dollar General Tumbled Today

Even though the stock market managed to squeeze out modest gains, these three stocks ended up losers today. Find out why.

Jun 27, 2014 at 6:15PM
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Friday brought a positive end of the week for the broader stock market, as investors continued to bet that the U.S. economy will be able to grow fast enough to ward off a long-awaited correction in major market benchmarks -- at least for a while longer. Yet, many market participants remain uncertain about the longer-term prospects for the market as a whole, and signs of weakness from particular stocks kept gains quite limited. Among the worst performers in the market were MannKind (NASDAQ:MNKD), Rackspace Hosting (NYSE:RAX), and Dollar General (NYSE:DG), each of which posted large declines Friday.

Mnkd
Source: MannKind.

MannKind fell 5.5% after getting mixed news from the Food and Drug Administration's decision on the company's key Afrezza inhaled-insulin product. The FDA approved Afrezza, and most investors thought that would send shares soaring. Yet, as part of its decision, the FDA required MannKind to include warnings on the product's box. The stock plunged as much as 22% after the announcement near the end of the trading day, but in the first hour of after-hours trading, MannKind shares regained about half of their lost ground from the regular session, and by the close of the after-hours session at 8 p.m. EDT, the stock had reversed all its losses and jumped 10% from its 4 p.m. closing level.

What's uncertain at this point is the impact that the warnings of potential problems for those with asthma or chronic obstructive pulmonary disease might have on doctors in their choice of whether to recommend Afrezza to patients. Nevertheless, the larger question is whether MannKind will be able to develop a product that can act as a long-term alternative to injected insulin, and the jury will be out on that front for quite a while longer.

Rax

Source: Rackspace Hosting.

Rackspace Hosting dropped 7% after market commentators noted that the cloud-computing company hasn't gotten the positive response it had hoped to see after essentially putting itself up for sale last month. The stock jumped when Rackspace first said it was seeking a buyer, and had several bidders interested. But as more time goes by without an actual offer on the table, Rackspace shareholders are getting more nervous. Given the challenges Rackspace faces in fighting larger competitors selling commoditized cloud services, it's not surprising to see investors' patience wearing thin.

Dollar General declined 7%, as well, on news that company CEO Richard Dreiling said that he would retire within the next year, or when the dollar-store retailer finds someone to replace him. The move puts a big question mark on the prospects for a potential merger with Family Dollar (NYSE:FDO), with Carl Icahn having suggested that Family Dollar pursue its larger rival in the hopes of drawing takeover interest. With Dollar General's massive expansion recently, investors have to worry that a change in leadership at this critical time could leave the retailer unprepared for changing conditions in the industry. The move shows just how important M&A prospects have become to valuations generally.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Rackspace Hosting. 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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