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Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 312-925-5248       Kathy: 630-323-8422

Comments on activity in client accounts

25 November 2016

During the week we sold British Petroleum for a trading profit and repurchased an equal number of shares of Marathon Oil. MRO has been moving dollar for dollar the same as BP but sells at one third the price.

We also bought Abbot Labs which is down 20% from its August because of hedging related to its proposed acquisition of St. Jude Medical and Alere. It is in a legal brouhaha with Alere with which it also has an acquisition agreement but which ABT seems to be trying to break or reduce the price. The hedging boys and girls are having a field day trading the options, common shares, and shorting and longing the three companies involved. When the dust settle ABT will move higher.

We bought Stratasys, a 3 D printing company that dropped 30 % on less than. We bought for a trade. Large cash position and book value of $21 offers downside protection.

Markets should stay positive until the inauguration- then??????.

18 November 2016

On Thursday we repurchased Hain Celestial higher than the price at which we sold last week because the company announced that its audit committee found no evidence of intentional wrongdoing in its misfiled quarterly reports. To explain: we bought HAIN a few months ago when the company announced that its accounting was under review and it would not file its quarterly report. That news caused the share price to drop from $50 to $38. Since Hain is basically a food company we decided it is most likely that revenues were misclassified by quarter. But several weeks ago the company asked for an extension to file its financials until January 2017. This suggested that the irregularities were greater and so we sold with the thought of repurchasing when the issue was settled. Now, with the announcement of no intentional irregularities our guess is that any inconsistencies will be minor. We repurchased a one half position because the word intentional suggests that there may have been some reporting mistakes.

Abercrombie reported lousy numbers and gave back the 10% gain it made this week. We doubled our position on Friday. ANF is priced at $1 billion; has $400 million in cash; and free cash flow over $100 million. We also purchased British Petroleum when it faded on Monday while other oils were moving higher. We haven't had as much luck trading BP as some other oil stocks but hope springs eternal and we bought at the low end of its yearly range.

We plan to try and trade nimbly as Trump news moves the markets round.

*****

Abercrombie:

Teen apparel retailer Abercrombie & Fitch Co posted a bigger-than-expected drop in quarterly sales as fewer customers visited its namesake stores.

Shares of the company, whose brands include Hollister and abercrombie kids, fell 13.17 percent to $14.70 in premarket trading on Friday.

Abercrombie's net sales fell 6.5 percent to $821.73 million, down for the 15th straight quarter. Analysts on average had expected $830.6 million, according to Thomson Reuters I/B/E/S.

"While Hollister improved sequentially, it was more than offset by disappointing performance in A&F," Executive Chairman Arthur Martinez said in a statement.

Abercrombie and other apparel retailers have struggled with increasing competition from fast-fashion retailers such as H&M and Inditex's Zara that offer trendier but cheaper clothing. Online and off-price retailers have also lured shoppers away with discounted offerings.

Comparable sales at its flagship Abercrombie stores fell 14 percent in the third quarter ended Oct. 29, compared with a 5 percent drop in the year-earlier period. Analysts on average had expected a 6.2 percent fall, according to research firm Consensus Metrix.

Sales at the company's established stores fell 6 percent, while analysts on average had expected a 3.9 percent fall.

Net income attributable to the company fell to $7.88 million, or 12 cents per share, in the quarter, from $41.89 million, or 60 cents per share, a year earlier.

Excluding certain items, Abercrombie earned 2 cents per share, well below the average analyst estimate of 21 cents. (Reporting by Gayathree Ganesan and Jessica Kuruthukulangara in Bengaluru; Editing by Martina D'Couto)

http://www.businessinsider.com/abercrombie-and-fitch-q3-2017-2016-11

*****

First Solar continues to lose ground with the Trump vote but we remain interested at much lower levels.

Credit Suisse cut its estimates and price target on First Solar, Inc. NASDAQFSLR, which needs a "near flawless execution" to navigate market as well as technological challenges.

First Solar is facing margin pressures on module sales on a slump in module and PPA prices due to oversupply. This led to the cancelation of Series 5 module expansion plans and replacement of 3 GW of current Series 4 capacity with Series 6 over the next 18 months.

As such, the company plans to cut about 1,600 jobs, totaling 27 percent of the total global workforce. In addition, First Solar updated its 2016 earnings guidance and guided 2017 earnings well below Street view.

"While the company has delivered on recent cost reduction and efficiency improvements, the task ahead is daunting and will require near flawless execution," Credit Suisse analyst Andrew Hughes wrote in a note.

Hughes cut his 2016 earnings view to $4.66 from $4.36. The analyst, who has a Neutral rating on the stock, slashed his target price to $30 from $50.

"More than ever, First Solar is a show-me story, and while there could very well be earnings power on the back-end, there is not much yet to point to say with confidence that it will happen," Hughes added.

Shares of First Solar closed Wednesday at $32.82. In pre-market hours, the stock sank 12 percent to $28.80 and set to open on a new 52-week low.

http://www.benzinga.com/analyst-ratings/analyst-color/16/11/8712831/first-solar-turnaround-will-require-near-flawless-execut

HAIN Celestial:

LAKE SUCCESS, N.Y., Nov. 16, 2016 /PRNewswire/ -- The Hain Celestial Group, Inc. (Nasdaq: HAIN), a leading organic and natural products company with operations in North America, Europe and India providing consumers with A Healthier Way of Lifeā„¢, announced today that the Audit Committee of the Company's Board of Directors has concluded its independent review with external counsel into concessions with respect to certain distributors in the United States. Hain Celestial had previously announced on August 15, 2016 that during the fourth quarter of fiscal year 2016 it had identified concessions that were granted to certain distributors in the United States and that the Audit Committee had retained independent counsel to assist in its independent review of such matter. The review, which was extensive, found no evidence of intentional wrongdoing in connection with the Company's financial statements. Hain Celestial has begun to implement a remediation plan to strengthen its internal controls and organization.

http://finance.yahoo.com/news/hain-celestial-announces-completion-independent-223200232.html

For a more detailed story with analysts' reaction:

http://www.benzinga.com/analyst-ratings/analyst-color/16/11/8715035/hain-celestial-emerges-from-cloud-of-accounting-uncertai

Armistice Day 2016

The election of Trump was a surprise. After a computer induced 800 point drop in the DJIA in overnight trading, markets opened higher on Wednesday and moved up throughout the day. Our guess is that initial gain was caused by short covering from the overnight debacle and then big boys and girls who were lightly invested awaiting the election results decided to join the crowd. Markets continued higher on Thursday and finally rested today as banks were closed. Those who went long do the overnight drop and on Wednesday are celebrating today. The majority of American voters who voted for Clinton (she won the popular vote by over 1 million votes) - not so much. A million used to mean something. Wonder what would have happened if Trump had won the popular and lost the electoral?

Trump is an unknown and markets usually will eventually react to this uncertainty. Our view is that the buyers of the last few days are guessing/hoping that saner heads prevail and that while Trump will enjoy the perks of office and run his business empire (which should prosper) he will allow the Repubs in Congress to do the heavy lifting. How that all works out is anyone's guess. Trump made a lot of promises which if enacted would raise the deficit and remove the safety net for many of his voters. The Repubs will be able to enact any legislation that they wish and will do so with alacrity...

Because we were expecting a Clinton victory we were more fully invested than we normally are at this time of year. We used Wednesday's rally to raise significant cash and our only substantial loss was in First Solar which probably will not prosper under the Trump oil/ coal/ gas thesis. The other sales were scratch profits and losses. While we think oil will eventually move higher due to Trumps future ill-considered actions in the world (such as tactical nuclear weapons usage) it will take a while for that scenario to occur (hopefully never). We have been lucky trading oil shares this year after a disastrous January through March period and we plan on continuing to treat them as anchovies.

And so a new era begins. Since we have no idea what it will bring we will trade cautiously. We maintained our positions in Sprouts and Abercrombie. ANF announces sales and earnings next week and we will add shares on weakness. We also repurchased Deutsch Bank as our Trump election play. DB is the only bank that has been willing to finance Trumps projects in recent years and we are just guessing that the proposed $12 billion fine suggested for the bank by U.S. authorities will probably be reduced to $1-$3 billion to avoid protracted litigation☺.

Until next week — we have entered in an era of Teapot Dome and the Robber Barons with one of their own in the White (soon to be gold) House.

*****

Teapot Dome Scandal: https://en.wikipedia.org/wiki/Teapot_Dome_scandal

Robber Barons: http://www.businessinsider.com/americas-robber-barons-2012-3

https://en.wikipedia.org/wiki/Robber_baron_(industrialist)

4 November 2016

The US economy added 161,000 jobs in October. The final jobs report released Friday, right before the November 8 presidential election, showed that the unemployment rate returned to 4.9%. It rose to 5% in September as more people without work started looking again. Wages grew at the fastest pace since the financial crisis. Average hourly earnings rose 2.8% year-on-year, the fastest growth since 2009, and 0.4% month-on-month (0.3% forecast).

*****

During the week we added to Sprouts and First Solar when both dropped on negative earnings/revenue reports. We traded out of Whole Foods for a scratch profit to fund the Sprouts add. Marathon Oil moved lower ahead of earnings and we added shares. We have been trading MRO this year and we missed an opportunity for a nice swing trade on Thursday when the shares jumped 10% on a better than report. We chose to take our loss in Viacom since takeover talk suggests that CBS will not pay up for the shares and we placed the funds in Macy's which has been under pressure for the last few months and is down 50% from its high. We also added to the Domestic Oil ETF (XOP).

We currently own: Wells Fargo; Hain Foods; First Solar; Chipotle; Sprouts; Abercrombie; Macy; Ascena; Under Armour; Marathon Oil; and XOP. We are a bit more fully invested than we have been but that is our normal course heading into year end. The election next Tuesday is the wild card over the short term.

*****

Nov 2 (Reuters) - First Solar Inc., the largest U.S. solar equipment manufacturer, reported a 55.9 percent drop in quarterly profit on Wednesday, and the company cut its full-year revenue forecast for the second time.

The company cut its revenue guidance to $2.8 billion-$2.9 billion from $3.8 billion-$4 billion as it revised the sale timing for its California Flats and Moapa projects. The projects are now expected to be sold in 2017.

First Solar's net income fell to $154.1 million, or $1.49 per share, in the third quarter ended Sept. 30 from $349.3 million, or $3.41 per share, a year earlier.

Net income in the quarter was hurt by pre-tax charges of $4 million.

First Solar, the first major U.S. solar company to report quarterly results, said net sales fell 45.9 percent to $688 million due to the completion of multiple systems projects during the quarter.

http://finance.yahoo.com/news/first-solar-fslr-beats-q3-124812212.html

*****

First Solar Inc. (NASDAQ: FSLR) was downgraded to Neutral from Buy and the fair value estimate was cut to $48 from $68 (versus a $40.58 close) at Janney. The firm sees its outlook diminished with pricing trends and other issues. First Solar was downgraded to Perform from Outperform at Oppenheimer. Shares were down 1.1% at $40.58 ahead of earnings and down 6.3% at $38.01 on Thursday morning post-earnings.

*****

HOUSTON (AP) _ Marathon Oil Corp. (MRO) on Wednesday reported a loss of $192 million in its third quarter.

On a per-share basis, the Houston-based company said it had a loss of 23 cents. Losses, adjusted for one-time gains and costs, came to 11 cents per share.

The results topped Wall Street expectations. The average estimate of 11 analysts surveyed by Zacks Investment Research was for a loss of 19 cents per share.

The energy company posted revenue of $1.23 billion in the period, also beating Street forecasts. Four analysts surveyed by Zacks expected $1.09 billion.

Marathon Oil shares have climbed 1.5 percent since the beginning of the year, while the Standard & Poor's 500 index has climbed roughly 3 percent. In the final minutes of trading on Wednesday, shares hit $12.78, a decline of 33 percent in the last 12 months.

http://www.wsj.com/articles/marathon-oils-quarterly-results-beat-projections-as-loss-narrows-sharply-1478172780?mod=yahoo_hs&yptr=yahoo

*****

Shares of Sprouts Farmers Market dropped to $20 in early-morning trading on Thursday after the company posted 2016 third quarter earnings that fell short of analysts' estimates.

Before the opening bell, the Phoenix-based natural and organic food retailer reported adjusted earnings of 16 cents per diluted share, missing Wall Street's projections of 17 cents per share.

Revenue grew 15% over last year to $1.04 billion and topped analysts' expectations of $1.01 billion.

Same-store sales rose 1.3% year-over-year in the quarter. Analysts surveyed by FactSet were looking for a 0.3% increase.

For the full year, the company forecasts adjusted earnings per diluted share of 83 cents to 86 cents. Wall Street is modeling adjusted earnings of 85 cents per share for the year.

Sprouts expects full-year revenue to rise 14.5% to 15% over last year's revenue of $3.59 billion. Analysts see revenue of $4.01 billion for 2016.

The company estimates that full-year same-store sales will grow 2.0% to 2.5% year-over-year vs. Wall Street's view of a 2.1% increase, according to FactSet.

https://www.thestreet.com/story/13879564/1/sprouts-farmers-market-sfm-stock-slumps-on-q3-earnings-miss.html?puc=yahoo&cm_ven=YAHOO&yptr=yahoo

*****

Shares of Whole Foods Market was up almost 5% Thursday after the company reported in-line revenue results and topped earnings per share expectations.

The results were slightly better than expected, although the company's same-store sales are still somewhat lackluster, TheStreet's Jim Cramer, co-manager of the Action Alerts PLUS portfolio, said on CNBC's "Mad Dash" segment.

https://www.thestreet.com/story/13879628/1/jim-cramer-whole-foods-results-were-good-not-great.html?puc=yahoo&cm_ven=YAHOO&yptr=yahoo

 



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