There's earnings. There's forecasts. And then there are lawsuits. The first two are pretty easy to figure out what will happen.
The third is a real wild card. Right now there are four situations where lawsuits are front and center: Qualcomm (QCOM) versus Apple (AAPL) ; Johnson & Johnson (JNJ) versus myriad users of talc who have contracted cancer; the District of Columbia's lawsuit just filed against Facebook (FB) ; and the Malaysian government's prosecution of Goldman Sachs (GS) for fraud. At the same time the market's reacting today, to potential lawsuits that could be filed against Allergan (AGN) for the sale of certain breast implants that could cause a rare form of cancer, a concern that caused sales to be suspended throughout Europe.
Let's break them down judging the severity of each to the stock price of the companies involved.
Qualcomm vs. Apple
I want to start with Qualcomm's litigation with Apple because it had, I believe, a much bigger impact on Apple's stock than anything other than the possibility of a very big fall off in Apple iPhone sales. That's because Qualcomm's got a judge in an obscure province in China who has ruled that certain models of Apple's iPhone can't be sold. Why does this matter? Because if you look at the Chinese org chart, so to speak, you will realize that every court is controlled by the Communist Party. As much as I think that Apple's a good citizen in China, this lawsuit is, in many ways, more important than the federal court suit that is supposed to be tried early next year in San Diego. Apple doesn't want to settle, has no plans to settle and so the potential bad news hangs out there. We know China's worth more to the stock even then it has already fallen. Put it on the watch list and understand that it can be undone if the two parties do settle and Qualcomm wants a settlement.
Johnson & Johnson
Next, Johnson & Johnson is being sued by about 12,000 women who claim to have gotten cancer from the asbestos in talc. The hot button here: two big articles that directly accused JNJ of knowingly selling a product for multiple years that contained asbestos which causes cancer. Alex Gorsky CEO of JNJ, came on Mad Money and denied these charges vociferously. Meanwhile today the court that ruled against JNJ for a $4.69 billion judgment on behalf of a group of women in Missouri, rejected a rehearing by JNJ. It seemed like a big deal but you have to expect the same judge to not change his mind. This one will now go to an appellate court. Meanwhile, come next summer, a New Jersey federal court, reviewing multi-district cases of about 8,000 women, will consider the science and the facts on the way to making a ruling that could stick and hurt JNJ if the drug company loses.
I know JNJ doesn't want to settle. I know it thinks it can overturn the Missouri verdict on appeal. My take? The stock has already collapsed, losing more than $50 billion, which even the lead plaintiff's lawyer thought was in excess of what could happen. This one seems like a buy, but wait a week, see if the story dies down, especially now that some are speculating that Gorsky and other execs sold stock ahead of the news stories. I think that's unfair. But it is out there.
Goldman Sachs
The lawsuit by the Malaysian government against Goldman Sachs for its role in the 1MBD scandal has weighed mightily on the scandal as has the investigation by the U.S. government. My take? Goldman, I believe, will have to settle and agree to cough up money and change its compliance policies, which I regard as already strict. I think it ends there, but it will be an issue for months, not weeks. Not for the faint of heart: but the stock is selling for less than if they closed the doors and distributed the cash.
Facebook? All I can say is "what took so long?" This one is a District of Columbia Attorney General bringing suit for violations of the District of Columbia's Consumer Protection Procedures Act. I predict many more of these and great reputational risk. But I still doubt that the advertisers will stay away. Nevertheless, the bunker mentality, the refusal to appoint an outside law firm of some renown to get to the bottom of this means there will be many more of these suits. Not good, but ultimately more settlements and no more.
Allergan
Finally, many are panicking that Allergan has big exposure for the rare breast cancer issue. There's good news for Allergan: the danger was well-known. The bad news: you are going to read many articles about both the sadness and the liability including, most likely, lawsuits. Because Allergan's balance is less than pristine there will be plenty of worry here and, yes, once again, settlements.
Every one of these is a serious taint. The stocks, though, have been hammered already. It's more headline risk going forward. All I ask is for you to ask yourself if you can handle those headlines. These stock will ultimately sink or swim on their fundamentals, I just don't know how long "ultimately" will take.
