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In
This Edition.... |
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Today's
edition continues to explore the economy's pending rebound - we're really
going to dive into last week's employment data. After that, we're going
to review a couple of interesting IPOs that should start trading sometime
in the next few days.
Unemployment
in July sank to a surprising 9.4%, which was under June's reading of 9.5%,
and below the market's expected 9.7%. Investors celebrated with yet another
rally.
 Though
it's encouraging to see more good news in terms of easing the recession,
we'll remind you of our multiple
diatribes regarding another key economic indicator.... consumer confidence
- one month does not make or change a trend (and the trend is
the only thing we're interested in).
Fact is, June's
levels could have been artificially high because of the way automakers
normally furlough employees mid-year ON TOP OF the ongoing new mass
layoffs within the auto manufacturing industry. Maybe June's figures should
have been 9.3%, if trying to make a true 'apples to apples' comparison.
Point being,
given the environment and the ever-changing inputs for the unemployment
rate, last month's slight move lower for one month doesn't tell us a
whole lot yet.
Nevertheless,
it's a start. If the unemployment rate sinks a couple more months, then
we can add shrinking joblessness to our list of positive signs.
On that note,
just as important (but perhaps discouraging) is the jobless claims
trend. Undoubtedly investors have been impressed by downtrend in initial
jobless
claims. The four-week average of new jobless claims levels now stands at
555K, which is well under June's average of 605K, and very much under March's
four-week average peak of about 660K.
The challenge
to that potential good news is unwavering continuing claims. Continuing
unemployment claims were up 69K last week (to 6.3 million). The four-week
average here is also about 500K less than June's four-week average of continuing
claims, but it's not clear if this is because these workers were hired,
or if their unemployment benefits simply expired. (Amazingly,
the BLS doesn't publish that information, even though it has to exist.)
 And
finally, it should be noted that non-farm payrolls have been trending
'less bad' since January, on a month-over-month basis. Said another
(clearer) way, in January, payrolls were cut by more than 4% from December's
total. The percentage has been generally shrinking since then though, only
scoring a decline of about 1.1% in July.
Obviously 'less
bad' is a dubious distinction, but if the trend continues at its current
pace, it could slip into positive territory by the fourth quarter.
Bottom line:
It's
not difficult to look at this data and see the glass as still half empty.
Trend-wise though, and accounting for all three pieces of information,
it's difficult not to say that at the very least we've hit bottom.
Yes, unemployment
benefits may have flat out expired for some workers, causing the ongoing
claims number to fall. But the unemployment rate is a hair lower (even
if partially a function of the dip in ongoing claims), and payroll cuts
aren't as drastic as they were a few months ago. It may simply be a case
where companies just can't afford to cut any more employees than they already
have, but that can still provide the stability needed for the economy to
regroup.
The game isn't
over yet, but score another one for the economy.
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Be
On the Lookout For.... |
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Though the vast
majority of our discussions here in the newsletter are about stocks that
are already issued, that doesn't mean we're not interested in an
initial public offering that's yet to start trading. Of course,
part of the reason we haven't spoken of any IPOs lately is simply that
there haven't been any.
Just to be clear,
IPOs really aren't any fundamentally different now than they've been in
the past three decades - most of them end up being disappointing. We've
come across a couple, however, that may actually hold water.
The two we think
have real potential are Emdeon Inc. and Cumberland Pharmaceuticals Inc.
There are no official tickers yet, as they've yet to actually go public.
Both are expected to start trading soon though.
 Emdeon
Inc. is a privately-held medical billing company, and a good one. In
fact, their network of hospitals, insurers, and plan providers is one of
the nations' biggest... which is why their platform is so attractive to
customers - Emdeon knows how to 'connect' all the billers and the billees.
The company's
business model is a transaction-based, meaning they get paid for each bill
they process, send, create, etc. As such, there's no significant cost/risk
other than retaining/losing customers. And, it's a fairly recession-proof
business.
Emdeon is also
profitable. In 2008, the company generated an EBITDA of $205 million and
net income of $11.9 million on sales of $853 million.
The only concern
we spotted is $860 million worth of debt, though that should be manageable
- even if annoying - given the strong cash flow.
 Cumberland
Pharmaceuticals Inc. is looking to raise about $100 million to continue
its expansion of its pharmaceutical product line.
Incredibly,
Cumberland isn't one of those pharma companies that's looking for money
to begin work on what the company is sure to be the next blockbuster drug....
those
companies are a dime a dozen, and usually end up being disappointments.
No, Cumberland is a pharma company that already has products on the
market, and - get this - is actually profitable.
For several
years now, the company has created real net income by selling Kristalose(r)
(for the treatment of chronic and acute constipation), and Acetadote(r)
(for acetaminophen poisoning). In June, the FDA approved its Caldolor(r)
as a pain and fever treatment.
What's a little
mismatched here is the size of the fund-raiding ($100 million) versus the
company's sales last year ($35 million). If Caldolor is already approved,
what
do they need that much money for now? Just go out there and sell it,
right?
While some of
the cash will be used to start marketable production of Caldolor, most
of the money is intended to acquire other late-stage trial drugs that nicely
fit into Cumberland's existing drug genre.
Were Cumberland
like most pharmaceutical companies asking for money (no actual product,
and income years away at best) it would be wise to be skeptical... to the
point of passing on the opportunity. In this case though, Cumberland
has somewhat proven itself and its fiscal responsibility by actually running
a profitable pharma company.
We may or may
not look at either company again. We just wanted to present them to our
readers because they were both far more interesting than the average IPO.
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
