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Why Harley-Davidson, American Equity Investment Life, and MTS Systems Slumped Today

By Dan Caplinger - Apr 6, 2016 at 5:39PM

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Even though the market gained ground, these stocks fell. Find out why.

Image source: Harley-Davidson.

Wednesday gave investors some relief from losses earlier in the week, and market participants chose to focus on some of the more positive elements of the economic environment in posting a modest rebound. Major market benchmarks gave investors decent gains of around 1%, following news that the Federal Reserve's Open Market Committee minutes included comments from several policymakers recommending a cautious approach toward interest rate hikes. That provided some comfort to those who had feared a more aggressive schedule for restoring more normal levels of monetary policy.

Yet even though overall markets fared reasonably well, some companies still struggled, and American Equity Investment Life (AEL 3.14%), MTS Systems (MTSC), and Harley-Davidson (HOG 1.73%) were among the relatively few big losers on the day.

American Equity Investment Life fell 15% on news that U.S. Labor Department regulators intend to make rules for selling complex products like indexed annuities more stringent. American Equity Investment Life is one of the biggest sellers of indexed annuities in the market, and although some financial planners have criticized the products for their substantial commissions and high level of complexity, most investors hadn't expected regulators to target that particular niche quite as directly as they did. Because a large proportion of indexed annuity sales occur within qualified retirement plans, the Labor Department has a stake in the matter, and investors fear that the negative attention could hurt sales throughout the industry and have a particularly large impact on big players like American Equity Investment Life.

MTS Systems fell 12% after announcing Wednesday morning that it would acquire Sensor Producer PCB Group in a deal worth $580 million. As the companies see it, both MTS and PCB share a leadership role in designing, making, and distributing sensor technology to improve the quality and user experience for end-users of their clients' products. CEO Jeffrey Graves believes the deal "is highly synergistic with both our Test and Sensor business units, making it a unique fit with MTS." Yet MTS said it would need to finance the deal with a combination of debt and equity issuance, and the potential for a dilutive share offering seems to be the motivation for the decline in the stock today.

Finally, Harley-Davidson dropped 7%. Analysts looking at the motorcycle market said they believed the iconic manufacturer could be losing market share to rivals like Polaris Industries, whose Indian motorcycle brand has enjoyed substantial success recently. Even though bullish investors believe Harley-Davidson could make up for lost ground by recovering in hard-hit markets like China and Brazil, others believe weak trends in the retail market could continue into the spring. Harley-Davidson has gotten through tough times before, and the value of the brand is undeniable. Yet as the key Baby Boomer demographic ages, Harley-Davidson will have to work harder in order to sustain its past success and find new ways to bring customers into the fold.

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Stocks Mentioned

Harley-Davidson, Inc. Stock Quote
Harley-Davidson, Inc.
$32.90 (1.73%) $0.56
MTS Systems Corporation Stock Quote
MTS Systems Corporation
American Equity Investment Life Holding Company Stock Quote
American Equity Investment Life Holding Company
$38.79 (3.14%) $1.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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