Citron’s Take on Mallinckrodt; Apple’s Supply Chain Concerns
Shares of MallinckrodtPLC (MNK) - Get Report are climbing 10% on Tuesday, despite Citron Research's Andrew Left appearing on CNBC's "Fast Money Halftime" show to discuss his short thesis on the stock.
Left, the executive editor at Citron Research, said the company's main drug, Acthar, is falling well short of its expected sales results. The shortfall can likely be pinned to either the company's sales team or by insurance reimbursement, and Left believes it is the latter.
Insurance companies want to see drugs that have gone through clinical trials and are evidence-based medicines, which Left says Acthar is not. Left, who recently published bearish commentary on Valeant Pharmaceuticals (VRX) , says Mallinckrodt "is not Valeant; this is much worse."
The conversation turned to Apple (AAPL) - Get Report , when Kulbinder Garcha, managing director at Credit Suisse, came on the show to explain his recent report on the company. He says Apple is experiencing an earlier-than-usual weakening in its supply chain. Because of this, he's lowering his 2016 earnings per share estimates by roughly 6% to $9.80 per share.
However, despite the lowered earnings per share estimate, Garcha remains relatively positive. While there may be downside in the near-term, investors should use the opportunity to buy the stock, as its long-term outlook remains intact. The company continues to grow its iPhone install base, which should boost upgrade sales in the future.
He has an outperform rating and $140 price target.
Josh Brown, CEO and co-founder of Ritholtz Wealth Management, says long-term investors should ignore negative commentary such as this. It's expected that the iPhone "S" cycle will be weaker than compared to when Apple introduces truly new models, (iPhone 4 vs. iPhone 4s; iPhone 5 vs iPhone 5s, etc). It helps that Apple has such an enormous share repurchase plan.
Stephanie Link, portfolio manager at TIAA-CREF, argued that many portfolio managers have to decide between being overweight or underweight Apple, and she finds Garcha's research useful. At the moment, her firm is underweight Apple, and she sees little reason to change that position over the next several months. Simply put, all of the company's catalysts at this point are well known. Instead, she likes NXP Semiconductor (NXPI) - Get Report .
Pete Najarian, co-founder of optionmonster.com and trademonster.com, said he likes Apple on the long side as its long-term potential still looks attractive.
Turning more broadly to the overall market, the S&P 500 ETF (SPY) - Get Report is flat on Tuesday. Joseph Terranova, senior managing director at Virtus Investment Partners, said some of the recent losses could be attributed to a potential rate hike next month. But the recent decline can also be explained by the massive rally stocks have experienced over the past month.
The rally in the U.S. dollar has caused a "pause" in U.S. stocks and falling oil prices aren't helping matters, Link added. But if those two assets stabilize, stocks could benefit.
Link also has her eye on the monthly retail sales data, which will be released on Friday. About 75% of U.S. GDP is driven by consumption, so it will be important to see if consumers are still spending. They benefit from lower energy prices, and she likes the autos, airlines and housing industries as a result.
Paul Pagnato, founder of Pagnato Karp and one of Barron's top 100 financial advisors, agreed with Link about the importance of the U.S. consumer. He likes consumer discretionary stocks, and specifically, Cabela's (CAB) and Home Depot (HD) - Get Report . Consumers should continue to benefit from lower energy prices and low interest rates. The average person in the U.S. saves $700 per year due to lower energy prices, and 78% of that savings is now being spent, he said.
As for the broader market, Pagnato doesn't view stocks as overvalued, and doesn't think it's time for investors to take "chips off the table."
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.