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Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 608-624-5777       Kathy: 630-323-8422

Comments on activity in client accounts

9 October 2015

This date marked the bottom of the correction in 2011. So far this year the correction ended a week ago but only time will tell. The markets have been up for 8 straight days which means they are overbought and we have taken profits and one loss to get back to a more evenly balanced position.

Our oil stocks moved 30% higher in the last week and we sold at a nice profit to await a pull back. Ascena Retail jumped today on news that Golden Gate Investors had acquired a 9% position. Since ASNA has just taken on $2 billion in debt threre is no way a leveraged buyout can occur and so we sold the pop awaiting the drop when saner heads prevail.

We also took profits in Twitter after buying earlier in the week and sold Deutsch Bank for a scratch loss on their negative news.

In a few aggressive accounts we purchased a package of low priced biotech stocks to try and take advantage of the selloff in biotech when the downturn runs its course.

GM brightened our week and The Gap reported unimpressive sales and dropped. We may wait for earnings nearly next month to add to the position.

What a difference a week makes. Keep the faith.


2 October 2015

Dear clients/friends/folks

The last month and one half of this quarter has been a roller coaster for the markets, account values and investor psyches. The correction we have been expecting arrived- with a vengeance on August 24- with the DJIA down 1000 points thanks to the computer trading jocks and jockesses. Since that time the major measure have been up and down up to 3% in a day and finished the quarter with the DJIA down 9% and the S&P 500 down 7%.

The major measures have been making higher lows above the 14450 low the DJIA briefly traded at on the 8/24 and that is a positive. Our guess is that the correction will run its course this month but not without a lot more fireworks.

We have been trading more actively refining holdings and in the last week taking some losses and scratch profits to adjust positions. Observing how stocks react in rallies and drops gives some idea of potential action coming out of the correction. The biotech and high flyers have been getting hit and that is a positive and as we wrote in earlier posts necessary to make a bottom. Those stocks will react well in any rally but are not our cup of value tea. And so we continue looking for investable ideas to own and add to.

At quarter end we owned these companies:

AT&T has a 5.8% yield and is at a 3 year low. AT&T just purchased Direct TV and there is selling pressure from DTV owners who received stock in the merger. That selling will eventually abate.

Abercrombie and Fitch has been a good trading stock for us in the past with overall results positive. Currently The Street is sour on Abercrombie but with Aeropostale looking like it is heading to the trades bin of bankruptcy its demise offers an opportunity for ANF and American Eagle to add to sales. Right now more analysts like AEO but we are sticking with Abercrombie. Shares yield 4% at current level.


Deutsch Bank is our European play. We lost money on it earlier in the year and we are back for another bite at the apple. Hopefully this time we will have sweeter results. Also yields 3%.

We have traded DreamWorks (the animated cartoon folks) before- never very profitably- but we own it at a better level this time. The company is a value/takeover play. No dividend.

We have traded Fifth Third Banks profitably and it gives us exposure in medium sized banks. The shares are down 20% from their yearly high and will participate. 2.8% dividend yield.

General Motors reported a 12% sales gain in September and has been hitting on all cylinders in the U.S. while suffering a bit in other markets. The stocks is cheap, financial position is strong and someday hopefully the big boys and girls will recognize its value. Till then it yields over 4% from a very secure dividend.

We owned Iridium years ago when Motorola was its main owner. Took a loss. Eventually IRDM filed bankruptcy and former Motorola executives bought it. It provides satellite phone service to remote areas and governments and large corporations are its main clients for such service. It is a speculation owned in small amounts in more aggressive accounts. No dividend.

Hecla was founded in 1885 and still mines silver and gold and actually earns money. We traded earlier in the year at a profit and have again purchased for a trade. No dividend.

We sold Old Second Bank earlier this year for a nice profit and have repurchased a lesser amount lower than our last sale. OSBC is located in a vibrant area west of Chicago and our guess is that eventually a larger bank will purchase as problem loans acquired before the 2009 banking debacle are worked out. Less than 1% yield.

We traded out of Marathon Oil for a scratch profit at the end of September. We maintain SPDR OIL ETF (XOP) as our play on eventual recovery in oil prices when Saudi Arabia decides to cease giving its oil away. Our oil exposure was too great with Marathon and XOP given current market conditions. XOP is a diversified investment in refining, transportation, and production companies. This and other oil ETFs are volatile since the hedge funds have programmed their computers to trade anomalies among spot oil prices, oil futures prices, underlying oil stocks and the oil related ETFS to exploit small pricing differences. These actions are not investing and can affect prices over the short run (hours/days) but not the long run. 2.2% yield.

Symantec, the Norton computer security folks, are selling their Veritas subsidiary for $7 billion. The sale will allow SYMC to concentrate on security. The share price is down 30% in the last 6 months at a three year low with a 3% yield.

Urban Outfitters, the young folks/alternate culture retailer is either loved or unloved by analysts and right now is in the doghouse. Founder and major owner Richard Haynes still runs the company and always recovers the streets' adulation. Its Free People sub run by Hayne's wife is killing it. Nepotism works at this outfit. No yield.


Whole Foods is a love it or leave it stock and right now it is unloved. We view it as more than a grocery store. WFM is more like a Starbucks — a shopping experience and a provider of quality goods. 1.6% yield.


Sprouts Food Markets is the lower cost Whole Foods that Whole Foods is trying to create with its new subdivision 365 Food Marts. The 365 name comes from WFM's in store brand name. Sprouts had good comps and revenues in its latest quarter and for the year but its high P/E ratio didn't offer support in the overall market correction. Since SFM's store concept is what WFM is trying to create we suggest WFM buy Sprouts. We don't want a fee for the suggestion. No yield.

Yahoo is in the process of spinning off its 15% stake in Alibaba which has a value equal to 85% of the total market value of Yahoo. We owned this stock a few years ago and then it ran out of sight when they hired Marissa Meyers... The halo of CEO Meyers has dimmed a bit in recent months but the tech stock is now a value situation and we own for a trade. No yield.


Other stocks we may reenter or purchase as new positions are Murphy Oil and Marathon in the oil sector, Intel and Cisco in the tech area, BankAmerica in the financials, and Ascena and The Gap in the retail area. We also are considering Verizon as a yield trade and will be hopefully repurchasing Alcoa. We don't like the split idea for Alcoa but the Street will and will run the shares higher in the next major move up.

We again have a good cash position in accounts after getting a bit too aggressive in the middle of September when we thought the correction had run its course. October may offer us the opportunity to place more funds in present or anticipated investments.

To see the URLs noted in this letter and to enjoy our weekly market comments visit our website at http://www.lemleyletter.com/lemley_home.html

As always we appreciate your confidence and wish all a happy autumn not fall.




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15624 Lemley Drive Soldiers Grove, Wi 54655 608-624-5777
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