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Judge Blocks Teva Pharmaceutical’s Settlement with Oklahoma

Posted: 13 Jun 2019 03:00 AM PDT

Maker of opioid products faces lengthy legal hurdles.

The state of Oklahoma has been going after pharmaceutical companies for their role in manufacturing and selling opioid products. Many companies have settled with the state without going to trial, with the exception of Johnson & Johnson (JNJ), which is currently going through a trial.

Teva Pharmaceutical Industries (TEVA) was one firm that settled with the state, and for $85 million. Yet a district judge in the state will not approve the settlement.

Specifically, the judge cited the possibility that the funds from the settlement will not go into the state's treasury. Without assurances from the state Attorney General, the case is now in legal limbo.

Lawmakers in the state enacted legislation to set aside funds from pharmaceutical companies to fund research and treatment programs for opioid abuse, rather than have the funds move into the state's general funding.

Action to take: Avoid the pharmaceutical companies for now, but look for an opportunity to buy at a lower price. States are starting to take on these companies the same way the tobacco companies started facing state actions in the 1990's.

That could lead to years of under-performance for the pharma companies, but once these issues are resolved and the uncertainty is gone, these companies should then start to rally in earnest again.

Unusual Options Activity: New York Community Bank (NYCB)

Posted: 13 Jun 2019 03:00 AM PDT

Big bet on shares moving 10 percent higher over next four months.

At least one trader is betting on a sizeable rally in shares of New York Community Bank (NYCB) between now and mid-October.

On Wednesday, over 10,100 contracts traded on an October 18th $11 call option for the regional bank. With a prior open interest of 462 this represents a twenty-two-fold surge in volume. Shares currently trade around $10, implying an upside of $1 per share, or about ten percent, for these call options to move in-the-money before expiration.

Banks have been one of the few laggards in the market in the past week. Hints from Federal Reserve Chairman Jerome Powell that the central bank may end up cutting interest rates before the end of the year are the reason why. When interest rates are lower, banks earn less money on the loans and other financial products they sell to customers.

Action to take: The bank trades at a nice valuation and pays a modest dividend. It's arguably undervalued and could be a potential takeover target. With the weakness in bank shares recently, it certainly looks like an attractive buy. The October $11 calls, trading for around $0.30, or $30 per contract, could fare very well if shares of the bank move higher by double-digits by the expiration in October.

CPI Data Shows Low Inflation

Posted: 13 Jun 2019 03:00 AM PDT

Prices for goods rise at a lower than expected rate in May.

The Bureau of Labor Statistics released its May Consumer Price Index data on Wednesday. The data shows a gain of 0.1 percent, trailing estimates of 0.2 percent.

This follows a 0.3 percent rise in April, which, if annualized, would have shown some of the largest inflation growth in nearly a decade. The new data suggests a slowing economy.

Over the past 12 months, CPI has risen by 1.8 percent, and is a close gauge for tracking changes in inflation.

The food portion of the index rose 0.3 percent after declining in April, accounting for nearly half of the change in the index for the past month. The biggest decliner in May was energy, which fell 0.6 percent on average.

This low level of change indicates that inflation is largely curbed, a view shared by the Federal Reserve with its announcement that it's more likely to cut interest rates in the future rather than raise them. The change also indicates a slower moving economy, particularly given the drop in energy prices.

Most items in the index either stayed flat or grew around 0.1 percent, including such items as shelter, medical care, airline fares, education, furnishings, and new vehicles.

Insider Activity: Martin Midstream Partners LP (MMLP)

Posted: 13 Jun 2019 03:00 AM PDT

CFO, COO, and General Council pick up half million in shares.

On June 11th, a large cluster of insiders bought up shares of Martin Midstream Partners LP (MMLP).

These buyers include CFO Robert Bondurant, who picked up 10,000 shares. General Council Chris Booth picked up 9,500 shares. And the company's COO, Randall Tauscher, picked up 20,000 shares. All told, these insiders bought nearly $500,000 in shares.

Martin Midstream is an energy company with a focus on transporting and storing petroleum products and natural gas. These types of companies have been largely shifting away from a limited partnership (LP) structure in recent years due to the various challenges that legal structure has over common stock shares.

Action to take: Shares of the company are down over 50 percent from their 52-week high of $14.55 per share. With oil storage increasing, and with the company trading under 10 times earnings and 9 times forward earnings, shares look attractive for a bounce from here. Besides capital gain potential, shares offer a 22 percent dividend yield in the meantime.

Buyer beware, however: LP companies have a different tax structure and may not be the best investment from a taxation point of view—check with your accountant before buying. And LP dividends are based on earnings, so the current yield, while large, may fluctuate.
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