Morning Reads

Morning Reads

Open Interest Changes



Popular drugstore chain Rite Aid (RAD) has filed for Chapter 11 bankruptcy protection, buckling under its more than $3B debt load and opioid-related liabilities. Rite Aid, which has been shuttering stores across the U.S., also received a commitment for $3.45B in new funds from certain lenders. Meanwhile, the pharmacy chain will sell its Elixir Solutions business to MedImpact Healthcare, a pharmacy benefits company.

Bigger picture: Rite Aid joins other drugmakers that have declared bankruptcy due to opioid litigation, such as Mallinckrodt (OTC:MNKTQ), Endo (OTC:ENDPQ), and Purdue Pharma. Drug distributors AmerisourceBergen, Cardinal Health (CAH), and McKesson (MCK) and pharma giants Johnson & Johnson (JNJ) and Teva (TEVA) have all agreed to pay billions of dollars to settle their opioid-related liabilities. As for Rite Aid, the Department of Justice earlier this year alleged that the company deliberately filled unlawful prescriptions for opioid painkillers, including fentanyl and oxycodone.

Note that Rite Aid's bankruptcy filing also comes at a time when consumer confidence has been weakening in the backdrop of sticky inflation. In a July analysis, ratings agency Moody's said defaults among retail and apparel would likely rise as profits continue to be dented by elevated costs, higher markdowns and muted consumer spending. Moody's said home goods, apparel retailers and smaller companies were especially at risk, even mentioning Rite Aid specifically.

SA commentary: SA Quant has warned that Rite Aid is at high risk of performing badly, given its decelerating momentum and inferior profitability. Back in July, SA analyst WYCO Researcher said Rite Aid's management was not doing enough to keep it out of bankruptcy court. "The biggest hurdle is negotiating the specific amount of an opioid settlement," they warned. For an alternative pharmacy chain pick, Christopher Robb is buying Walgreens Boots Alliance (WBA) going into earnings on account of its high dividend and "dirt cheap" valuation levels. "Walgreens stock is a high-risk, high-reward contrarian play for long-term dividend compounders," he said. (29 comments)

Offer withdrawn

Albemarle (ALB) has withdrawn its non-binding offer for Australian lithium miner Liontown Resources (OTCPK:LINRF), citing "growing complexities" with the proposed transaction as a factor in its decision. "Moving forward with the acquisition, at this time, is not in Albemarle's best interests," said its CEO Kent Masters. The decision comes after Albemarle was given four weeks to look over its books following a fresh takeover bid valuing it at around $4.2B, which was extended by an additional week. Although a lithium bull, SA analyst Ben Short has flagged some of the headwinds facing Albemarle, including contract issues and operational weaknesses. (19 comments)

Investor activism

Starboard Value has been building a stake in News Corp. (NWSANWS), and it seems the activist hedge fund may push for strategic and governance changes at the media giant. While details of the stock purchase were not disclosed, Starboard's Jeff Smith is set to present investment ideas at two conferences this week. Starboard began building a stake in News Corp. before Rupert Murdoch said he would step down as chairman. Note that News Corp.'s revenue has been stagnant over the past several quarters. SA analyst Edgar Torres H believes News Corp. stock is overvalued, with its class A shares (NWSA) up nearly 19% in the last six months, while its class B shares (NWS) climbed 22%.

Rigged bet

Billionaire activist investor Carl Icahn claims that his short bet against malls may be manipulated against him. Icahn has had a short position against commercial mortgage-backed securities through the use of credit default swaps, or CDS, for the last four years. While the mall bet paid off during the COVID-19 lockdown and Icahn made about $900M in 2020, it hasn't been working of late. Last year, Icahn Enterprises' (IEP) CDS positions took a $742M paper loss, and its short credit positions have also been dropped. Icahn suggested that the recent market manipulation relates to Crossgates, a mall outside of Albany, New York. (71 comments)

Today's Markets

In Asia, Japan -2%. Hong Kong -1%. China -0.5%. India -0.2%.
In Europe, at midday, London +0.4%. Paris +0.2%. Frankfurt +0.1%.
Futures at 7:00, Dow +0.4%. S&P +0.3%. Nasdaq flat. Crude +0.1% to $87.75. Gold -0.6% at $1,929.20. Bitcoin +3.3% to $27,771.
Ten-year Treasury Yield +7 bps to 4.70%.

Today's Economic Calendar

8:30 Empire State Mfg Survey
10:30 Fed's Harker: Economic Outlook
4:30 PM Fed's Harker: Economic Outlook

Companies reporting earnings today »

What else is happening...

The mounting, potential impact of weight loss drugs on consumer stocks.

Sony (SONY) eyes potential purchase of Disney's (DISIndia business.

Unions vote to restart strikes at Chevron's (CVX) LNG sites in Australia.

Qataris scrap bid for Manchester United (MANU); Ratcliffe is sole bidder.

China central bank boosts liquidity support; keeps policy rate unchanged.

Eli Lilly (LLY) reports full phase 3 trial data for weight loss drug Mounjaro.

Honeywell (HON) sees strong demand for business jets over next decade.

BioNTech (BNTX) dips on warning of €900M write-off related to COVID shot.

As Nvidia (NVDA) speeds up its cadence, it could mean bad news for rivals.

UBS: 'Softish' landing in the U.S. economy will push stocks higher next year.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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