It’s not even a case of two steps forward, one step back. The Dow Jones Industrial Average is running in place, advancing a few dozen points one day, falling back by a like amount the next, and all the while hugging close to the 14,000-point mark. The president’s State of the Union address coupled with bland retail sales weighed on the market.
But Cliffs Natural Resources Inc (NYSE:CLF), Peregrine Pharmaceuticals (NASDAQ:PPHM), and Coeur d’Alene Mines Corporation (NYSE:CDE) were three companies more concerned with their own problems last week.
Now, don’t go running over the cliff with them like a bunch of lemmings: This could just be a temporary situation. Let’s first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.
On the precipice
A day after reporting a fourth-quarter and full-year loss and announcing what it termed a “meaningful reduction” in its dividend, Cliffs Natural Resources lost a fifth of its value in trading in one day last week. Yeah, slashing your payout 76% might be considered “meaningful.”
Although sales volumes were up in its eastern Canadian and Asia Pacific iron ore markets, pricing weakness continued to pressure the revenues per ton realized by the miner. Worse, the U.S. iron ore market — Cliffs’ largest segment — saw both lower revenues and lower volumes, which fell to 6.2 million tons from 7.8 million tons a year ago. Revenues per ton were 7% lower.
Coupled with the 19% and 23% decline in revenues per ton from Canada and Asia, respectively, and lower revenues in its coal business (despite much higher volumes for its met coal output), the miner finds itself digging behind the couch cushions for change. It has just $195 million in cash and equivalents in the bank but owes almost $4 billion in long-term debt.
As a result of its shaky finances, Cliffs had little choice but to take a meat ax to its dividend, cutting it from $0.625 all the way down to $0.15 per share. The geographical diversity that I thought would benefit the miner hasn’t played out as anticipated, however, and it becomes difficult to recommend the stock at this juncture.
This stock got winged
Drug developer Peregrine Pharmaceuticals announced phase 2 results for its pancreatic cancer therapy bavituximab last week, and while the news initially gave the stock a big boost, further reflection showed that the drug might not be the world-beater it was originally thought. Peregrine said median overall survival improvement was only “modest,” so it was going to be considering what steps it should take next. Modest improvements aren’t exactly the looked-for outcome in a cancer treatment, which might make finding a partner for the drug more challenging, assuming it decides to move forward.