A recent run of quiet trading for the stock market continued for most of Monday, with major market benchmarks giving ground toward the end of the day to finish the month little changed. Even though declines for the Dow and S&P 500 were measured, a few stocks posted more substantial drops, and among the top decliners on the day were Vale (NYSE:VALE), Lululemon Athletica (NASDAQ:LULU), and Allegiant Travel (NASDAQ:ALGT).
Vale fell 6% after it and joint-venture partner BHP Billiton (NYSE:BHP) found out that the Brazilian government would look for more than $5 billion in damages for the collapse of a dam at the Samarco Mineracao project in the southeastern part of the country earlier in November. The government would use the proceeds to help fight alleged contamination of the Rio Doce, into which mud and mining waste were released in the dam breach. Given that Vale is already dealing with a weak iron ore market and profit challenges, a major lawsuit is the last thing the company needs, especially given the likely political fallout from a government that has already had to deal with controversy regarding natural resources.
Lululemon dropped 9% as the yoga-apparel retailer's stock responded to fears of poor profit margins during the holiday season from Wall Street analysts. Comments from FBR pointed to increased competition in Lululemon's core market as well as new potential obstacles in its upstart men's division that could hold back comparable-store sales growth. Moreover, with the retailer facing some inventory issues, fears of greater promotional discounting could further weigh on profitability for the key holiday season. Lululemon's past struggles will make investors nervous until it can prove it will overcome these challenges going forward.
Finally, Allegiant Travel declined 9%. A Raymond James analyst offered mixed views on the airline, expressing concern that a possible future jump in fuel prices could eat into expected profits. Even though the analyst believes that Allegiant's customer base is less likely to change its behavior based on price changes than those of other airlines, industry conditions would still make it difficult for Allegiant to implement fare increases in response to a combination of higher fuel costs and increasing capacity across the airline sector. Allegiant will also have to deal with rising aircraft maintenance costs in the near future, and that could weigh further on earnings growth. Yet Raymond James also held out hope for shareholders, noting that if fuel prices stay low for a longer period than it expects, then Allegiant is in a good position to capitalize on the opportunity to earn additional profits.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool owns shares of Companhia Vale Ads. 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.