Canada’s key equity index hit an eight week low after good U.S. economic data raised fears that the U.S. Federal Reserve might soon dial down its monetary stimulus.
The S&P/TSX Composite Index (^OSPTX) closed down 19 points, or 0.14%. South of the border, the Dow Jones Industrials Average was off 104 points, or 0.66%.
Gold prices were hard hit. The SPDR Gold Trust (NYSEMKT: GLD), a good proxy for the yellow metal, was down 2.1% today nearing a two year low. With the Fed taking its foot off the monetary gas pedal, a lot of investors have to be asking what’s the point of storing a commodity in a vault that does nothing. Especially when there’re opportunities to earn higher returns elsewhere.
The steepest decline was felt by the gold mining industry, which hit a 10- year low. With gold prices nearing US$ 1,200 per ounce, many companies are struggling to generate enough cash flow to finance their debt obligations. Investors are worried that we could be in for another round of expensive equity issues.
Shares of IAMGOLD (TSX: IMG, NYSE: IAG) were down 10.8% after the Toronto- based miner suspended its dividend. While painful for shareholders, the move makes sense from our view. The company has been burning cash due to falling precious metal prices. Cutting distributions will save the company $94 million per year and provide some relief for the balance sheet.
Canadian indices were also dragged lower after Fortis (TSX: FTS) announced its acquisition of Arizona utility UNS Energy for US$2.5 billion.
Is this a good deal for shareholders? Investors have every right to be skeptical. Typically these bold acquisitions do more to stroke the egos of management than line the pockets of shareholders.
It’s safe to assume, given the market’s reaction, that this deal is overpriced. It’s another raw deal for the Canadian shareholder.
And while it’s no longer listed on the TSX, widely-held Canadian icon Lululemon Athletica (NASDAQ: LULU) shares tanked 11.6% after reporting earnings. More problems emerged this quarter after management’s guidance failed to meet the street’s expectations and public relation issues force an executive shuffle at the top.
Ugly headlines aside, we can’t help but feel that the financial media missed the real story here. Digging into the company’s financial statements, gross margins are down and inventories are piling up. We’re really starting to see rivals like Athletica, Under Armour and even Target take a bite out of the company’s business.
Worse yet, management announced that it expected same-store-sales to be flat during the fourth quarter. This is a dramatic downshift from a company that has routinely delivered double-digit comparable store sales growth.
That’s not to say the Lululemon expansion story is over. One earnings report does not a company make. But when your stock is trading north of 30 times earnings, execution must be flawless.
