March 28, 2014
Comment on Model Portfolio activity
We added Cree, the LED light
bulb maker to a few accounts today. We are in a wait and watch mode and remain
what for us is fully invited.
March 21, 2014
Comment on Model Portfolio activity
client visiting so this post will be short. Markets are in a wait and see
attitude and so are we.
March 14, 2014
Pi Day and Ides of March 2014
Comment on Model Portfolio activity
has a market cap of $50 billion and will sell over 9 million cars.
is under pressure because of potential lawsuits over faulty ignition switches
and will remain under pressure for a few more months but we maintain our belief
that the shares are severely undervalued in the marketplace.
( an investor darling) has a market cap of $30 billion and will sell less than
40,000 cars this year. Its market is
the luxury car market even when it gets a cheaper (?) $45,000 model and it is
taking share from BMW, Mercedes etc not the GM/Ford/Toyota consumer market.
added Fresh Markets this week to accounts.
correction this week has the bears enthralled and more pressure is likely. We
like what we own.
Crimea, Sevastopol…the events in
that part of the world that few Americans know offer the opportunity to sadly
remember the folly of conflict and war. Revisiting the past:
Crimean War (krĪmēˈən) [key],
1853–56, war between Russia on the one hand and the Ottoman Empire, Great
Britain, France, and Sardinia on the other. The causes of the conflict were
inherent in the unsolved Eastern
Question. The more immediate occasion was a dispute between Russia
and France over the Palestinian holy places. Challenging the claim of Russia to
guardianship of the holy places, France in 1852 secured from Sultan Abd
al-Majid certain privileges for the Latin churches. Russian counterdemands
were turned down (1853) by the Ottoman government.
In July, 1853, Russia retorted
by occupying the Ottoman vassal states of Moldavia and Walachia, and in
October, after futile negotiations, the Ottomans declared war. In Mar., 1854,
Britain and France, having already dispatched fleets to the Black Sea, declared
war on Russia; Sardinia followed suit in Jan., 1855. Austria remained neutral,
but by threatening to enter the war on the Ottoman side forced Russia to
evacuate Moldavia and Walachia, which were occupied (Aug., 1854) by Austrian
In Sept., 1854, allied troops
landed in the Crimea, with the object of capturing Sevastopol.
The Russian fortress, defended by Totleben,
resisted heroically until Sept., 1855. Allied commanders were Lord Raglan
for the British and Marshal Saint-Arnaud, succeeded later by Marshal Canrobert,
for the French. Military operations, which were marked on both sides by great
stubbornness, gallantry, and disregard for casualties, remained localized.
Famous episodes were the battles of Balaklava
(1854) and the allied capture (1855) of Malakhov
and Redan, which preceded the fall of Sevastopol. On the Asian front the
Russians gained advantages and occupied Kars.
The accession (1855) of Czar Alexander
II and the capture of Sevastopol led to peace negotiations that
resulted (Feb., 1856) in the Treaty of Paris (see Paris,
Congress of). The Crimean War ended the dominant role of Russia in
SE Europe; the cooling of Austro-Russian relations was an important factor in
subsequent European history. The scandalous treatment of the troops,
particularly the wounded, depicted by war correspondents, prompted the work of
which was perhaps the most positive result of the war.
more: Crimean War | Infoplease.com http://www.infoplease.com/encyclopedia/history/crimean-war.html#ixzz2vweAeAR5
Another Siege of Sevastopol
took place on the Eastern Front of the Second World War.
The campaign was fought by the Axis powers
of Germany, Romania,
and Italy against the Soviet
Union for control of Sevastopol,
a port in the Crimea
on the Black Sea.
On 22 June 1941 the Axis invaded the Soviet Union during Operation
Barbarossa. Axis land forces reached the Crimea in the autumn
of 1941 and overran most of the area. The only objective not in Axis hands was
Sevastopol. Several attempts were made to secure the city in October and
November 1941. A major attack was planned for late November, but heavy rains
delayed the Axis attack until 17 December 1941. Under the command of Erich
von Manstein, Axis forces were unable to capture Sevastopol
during this first operation. Soviet forces launched an amphibious landing on
the Crimean peninsula at Kerch in December 1941 to
relieve the siege and force the Axis to divert forces to defend their gains.
The operation saved Sevastopol for the time being, but the bridgehead in the
eastern Crimea was eliminated in May 1942.
Articles on two stocks we now
American Eagle Outfitters'
Profits Fall But It Still Looks Good For The Long Run
Shares of teen apparel retailer American
Eagle Outfitters fell by more than 5% after its Q4 fiscal 2013
earnings per share missed the consensus estimates and it issued a conservative
guidance for the first quarter. The retailer’s earnings per share for the
fourth quarter remained low at 5 cents, which was well below the expected
figure of 26 cents. Also, its revenues declined by almost 7% to $1.04 billion
due to weak consumer spending and low store traffic on account of extreme cold.
For the entire year, American Eagle’s revenues fell by 5% and its operating
income stumbled by 47%. Throughout fiscal 2013, the company struggled for
growth due to the sluggish economic environment, low brand loyalty, weak mall
traffic, missed fashion calls and fierce competition from fast fashion brands
such as Forever 21 and H&M.
While American Eagle expects
to continue facing challenges in the first quarter due to extreme weather, we
believe that its growth can pick up gradually. The retailer’s efforts to
improve its brand image can yield fruitful results as it has been one of the
most popular teen apparel brands in the past. As the company is strengthening
its omni-channel platform to provide a seamless shopping experience, its store
and web traffic should improve going forward.
A while back, American Eagle’s
CEO Robert Hanson made a surprising exit from the company. Although the reason
for his departure is not clear, interim CEO Jay Schottenstein stated that the
company is searching for a new CEO.
Our price estimate
for American Eagle Outfitters stands at $18.88, implying a premium
of about 45% to the market price. However, we are in the process of updating
our model in light of the recent earnings release.
American Eagle Is Looking To
Revamp Its Brand Image
Over the past year, American
Eagle has seen its brand falter in the U.S.,burdened by its over-emphasis on
basic products, its missed fashion calls and limited fashion variety. As a result,
teenage buyers have developed a perception that American Eagle brand is no
longer “cool.” Even the company recognized that its merchandise assortments and
the overall customer shopping experience were not well received during the
holiday quarter. Therefore, American Eagle had to use heavy markdowns to
attract customers and clear its holiday inventory.
However, the company is
working very hard to rejuvenate its brand image by specifically focusing on
product design and marketing. Despite its weak connection with the customers,
some of American Eagle’s products such as denim still remain very popular.
Recently, music icon Shakira wore American Eagle jeans in Women’s Health
magazine, which somewhat defines its popularity. We believe that the company
has an opportunity to leverage such products to better drive its topline
American Eagle is looking to
strengthen its product assortments with more innovation in distinct finishes,
fabrics and washes. Moreover, the inclusion of Chad Kessler (new chief
merchandising and design officer) in the designing system is expected to bring
some fresh and relevant changes to the brand’s merchandise. The retailer is
also looking to enhance its focus on accessories and outerwear, which were
de-emphasized last year. Additionally, American Eagle is organizing certain
marketing events such as AE Real People and Aerie’s Real campaign to engage its
customers in an appealing manner. We expect these efforts to have a
positive impact on American Eagle’s brand image going forward. However, the
retailer will have to show consistency in delivering season- and trend-relevant
The Fresh Market Is in Better
Shape Than You Think
Is The Fresh Market (NASDAQ: TFM )
ripe for investment? The company is a major player in one of the hottest spaces
within the food industry—natural and organic retailing. In its recent earnings,
the company didn't post very appealing metrics and discouraged investors with
news that a store expansion strategy wasn't working, but are these conditions
indicative of long-term, fundamental issues, or just a misstep? If it's the latter,
investors may have an interesting opportunity to buy into a well-run company at
its most appealing valuation in some time. Here's what investors need to
consider regarding The Fresh Market.
In The Fresh Market's fourth
quarter, both top- and bottom-line figures came in below analyst expectations,
largely due to some of the worst same-store sales growth in years. Same-store
sales grew just 3.1%, which in isolation isn't a terrible number, but when
compared to peers in the industry is quite weak. Even the industry
behemoth Whole Foods Market posted
5.4% growth. The Fresh Market management pointed toward a 1% hit due to
extreme weather, but that was not an issue unique to the company.
Revenue did increase --
up 15.1% to $425.8 million, but these gains did not carry down through the
income statement as net earnings declined 9% year over year to $0.39 per share.
Analysts had expected $430 million in sales with an average of $0.42 per share
Topping off the negative
report, management announced some restructuring efforts -- closing
underperforming stores in Texas and California and halting its new market
In the current year, The Fresh
Market anticipates 11%-19% earnings growth, with 23-25 new store openings and
same-store sales growth of 1.5%-3.5% -- a still-anemic figure by most counts.
So, if The Fresh Market isn't
competing well with its peers, why does the lower valuation even matter?
Not so fast
There needs to be some
perspective here as to why The Fresh Market has had a bad run for three
quarters in a row. For one thing, the company was heading into 2013 with very
difficult comparable quarters and a ton of market hype. There's no denying that
its sales figures in recent periods haven't been up to snuff, but the reaction
was multiplied because the market had overvalued this company so steeply for so
long. As happens so often in these situations, reality caught up with
As far as the store closures,
management made an expensive mistake. The company tried a new tactic of
jump-starting market awareness and branding in places like Sacramento and
Houston. This is sharp departure from the gradual, cautious approach it had taken
to other new markets. The company put too much emphasis on a shock-and-awe
market entry and neglected the requisite market and demographic research.
Still, shouldn't investors
celebrate a management team that knows when a mistake has been made and can react
quickly to move forward? As the company exits this failed experiment, the
growing, extremely profitable core market stores will shine bright once again.
The company also has a foothold in areas in the Midwest (using the traditional
strategy) that it will continue to push.
At 18 times forward earnings,
The Fresh Market trades at a steep discount to all of its peers. Whole Foods
trades at nearly 28 times forward earnings, and Sprouts Farmers Market trades
at an insane 48 times earnings. The Fresh Market can and will come out of its
slump, and at today's price offers investors an appealing deal on long-term
growth in the red-hot natural foods industry.
March 7, 2014
Comment on Model Portfolio activity
Today is the anniversary of
the market low in March of 2009 when the world was ending. Despair to euphoria
and market lows to market highs.
We added to Ascena Retail during the week after earnings were less than.
The employment report was
better than but since the gain falls within the margin of error it may be good
news or bad news. But the big boys and girls don’t care since they need a
number to trade off and so the Employment Report has become the Holy Grail of
monthly economic numbers just as the balance of payments was in the 1980s.
(The confidence interval for the monthly
change in total nonfarm employment from the establishment survey is on the
order of plus or minus 90,000. Suppose the estimate of nonfarm employment
increases by 50,000 from one month to the next. The 90-percent confidence
interval on the monthly change would range from -40,000 to +140,000 (50,000 +/-
90,000). These figures do not mean that the sample results are off by these
magnitudes, but rather that there is about a 90-percent chance that the true over-the-month
change lies within this interval. Since this range includes values of less than
zero, we could not say with confidence that nonfarm employment had, in fact,
increased that month. If, however, the reported nonfarm employment rise was
250,000, then all of the values within the 90- percent confidence interval
would be greater than zero. In this case, it is likely (at least a 90-percent
chance) that nonfarm employment had, in fact, risen that month. At an
unemployment rate of around 6.0 percent, the 90-percent confidence interval for
the monthly change in unemployment as measured by the household survey is about
+/- 300,000, and for the monthly change in the unemployment rate it is about +/-
0.2 percentage point.)
We remain pretty fully
March 1, 2014
Comment on Model Portfolio activity
During the week we added Chico Fas to accounts, traded First
Solar for a $3 one day gain, took a loss on GM common since we had replaced our
exposure with GM B warrants, sold Citrix and Abercrombie for nice gains and
added to our Urban Outfitters position.
We expect market to continue to move higher into May and are
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