Why BlackBerry, MGIC Investment, and Herbalife Tumbled Today

Enthusiasm about the continued success of the U.S. economy helped push the stock market higher today, with high-profile earnings reports sending the Dow to a new all-time record high. Yet, despite positive signs that merger and acquisition activity and increased stock buybacks could keep lifting markets beyond current levels, some stocks didn't join in those gains, with BlackBerry (NASDAQ: BBRY  ) , MGIC Investment (NYSE: MTG  ) , and Herbalife (NYSE: HLF  ) among the worst performers in the stock market on Wednesday.

BlackBerry dropped 12% as the smartphone pioneer took pressure from a deal between Apple (NASDAQ: AAPL  ) and IBM (NYSE: IBM  ) to target the enterprise mobility-solutions market. The deal involves a partnership to build more than 100 new apps for clients who need high levels of security and reliability for their mobile devices. Given the fact that BlackBerry CEO John Chen has identified enterprise mobility as the key element of the company's turnaround, the fact that two high-profile tech companies are going head-to-head against BlackBerry threatens outright disaster for the company's stock. Given the enterprise relationships that IBM has, and the reputation that Apple devices have built, BlackBerry will face a significant challenge to keep moving forward.

MGIC fell 7% as the mortgage-insurance company failed to match expectations in its quarterly earnings report this morning. MGIC managed to earn $0.12 per share, which represents a solid turnaround for the insurer compared to the consistent losses it posted in the aftermath of the financial crisis. Yet, even though the housing market has gained a lot of ground in recent years, changes in regulatory requirements for mortgage insurers to be involved in agency-conforming mortgage loans could leave MGIC with inadequate capital. The necessary steps to comply with new regulations could, in turn, reduce MGIC's returns on capital, and if the housing market weakens, it could create another downturn for MGIC going forward.


Source: Herbalife.

Herbalife declined 5% as the maker of nutritional products braces for potentially negative news next week. According to reports from the New York Post, activist investor Bill Ackman expects to reveal his findings after two years of investigation into Herbalife, and the results are likely to support Ackman's contention that the company is a pyramid scheme involving its distributor base. So far, though, Herbalife has managed to survive similar allegations in the past, and several investors, including Carl Icahn, have taken the other side of Ackman's short position in the company's stock. In the meantime, Herbalife needs to keep executing its business strategy and prove Ackman's allegations wrong in order to appease skeptical investors that its profit potential is real.

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