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Halloween 2015

During the week we repurchased AT&T and Deutsch Bank, and sold Twitter and Iridium for scratch profits, Ascena for a scratch loss to reduce retail exposure, and Fifth Third and BankAmerica for gains. We also sold 9 Biotech holdings for a scratch to concentrate on three. The three we kept Amicus Therapeutics, Affimed N.V. and Tetraphase Pharmaceuticals seem the best of a depressed bunch. Stories on them are below.

All accounts are higher at the end of this month than they were at the end of September but still have a long way to go to meet our expectations. Our machinations this week added cash to accounts. With the Budget crisis averted — at the cost of taking money from disabled folks ☹- the markets can now turn their attention to war with China over the shipping lanes in the South China Sea. Buy war stocks - they are always in favor.

Articles of interest follow:

VMware

This company reported very solid numbers but shares are down huge over the past week, dropping 30% since the Dell-EMC deal was announced. VMware Inc. (NYSE: VMW) is a global leader in cloud infrastructure and business mobility. Its industry-leading virtualization technology solutions deliver a brave new model of IT that is fluid, instant and more secure. Customers can innovate faster by rapidly developing, automatically delivering and more safely consuming any application. With 2014 revenues of $6 billion, VMware has more than 500,000 customers and 75,000 partners.

VMware is adding enterprise license agreements at a furious pace, and cloud management tools are now 16% penetrated into the customer base, with plenty of room to grow. The bottom line is that this company is still very strong, and the stock still is trading almost 50% below highs printed in April of 2014.

Of course the big issue is how many of the company's shares will hit the tape as a result of the Dell deal with EMC, which has been a concern even before the deal surfaced. Jefferies feels that VMware will continue to trade at a discount to intrinsic value because of the overhang, but the firm sees big upside to the stock from current trading levels. In fact, with the big drop recently, the stock is now trading at levels the analysts assign to the value of its existing maintenance stream.

The Jefferies price target is $83. The consensus target is $77.71. Shares closed Thursday at $56.79.

http://247wallst.com/investing/2015/10/23/jefferies-has-4-fallen-angels-stocks-to-buy-with-big-potential-upside/2/

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VMware stock was upgraded to "buy" from "hold" at Drexel Hamilton on Tuesday. The firm maintained its $73 price target on the stock.

Drexel upgraded the Palo Alto-based virtual infrastructure company after "the plethora of rating downgrades from the Street last week," the firm said.

VMware reported earnings of $1.02 a share for the third quarter last week, above analysts' estimates of $1 a share for the quarter. Revenue grew by 9.9% year over year to $1.67 billion for the quarter, compared to analysts' estimates of $1.66 billion.

"Since early 2013, we have been on the sidelines as it relates to VMware's stock; however, we believe the valuation is now extremely compelling at 11x our CY:16 EPS projection (ex-cash) and more than reflects the company's portfolio transition," Drexel Hamilton said, adding that VMware stock reached the lowest P/E since the company's IPO in August 2007.

*****

How the Technology of One Small Biotech Can Save Tetraphase

By Rafi Farber October 15, 2015 8:45 am EDT

Tetraphase Pharmaceuticals Inc. (NASDAQ: TTPH) continues to reel from the spectacular and unexpected failure of its flagship candidate, eravacycline. Shares have essentially reverted to IPO level and lost almost all of their gains as the biotech's feature product crashed and burned after racking up so many clinical successes until its Phase 3 failure in early September.

Biotech followers may remember well when eravacycline succeeded in passing its first Phase 3 trial. The most frustrating question then for both the company and its shareholders is why, if the first Phase 3 succeeded in proving statistical noninferiority to standard of care, did the second one fail?

Last December, Tetraphase announced that its eravacycline Phase 3 trial had achieved its primary endpoint of statistical noniferiority to ertapanem in complicated intra-abdominal infections, or cIAI. Shares rose as high as $52.90 on the assumption that this proved eravacycline's efficacy, and that if the antibiotic could pass one Phase 3 trial, it could succeed in others as well. But that was not the case, and it teaches us all that even Phase 3 success does not always translate to ultimate regulatory success.

The differentiating factor between the IGNITE1 and IGNITE2 trials, the respective code names for eravacycline's two Phase 3 trials, seems to be the method of dosage administration. IGNITE1 was only intravenous. IGNITE2 however, was a transition from intravenous to oral. Oral administration is much more difficult to perfect because there is generally less bioavailability than intravenous. While intravenous goes directly to the bloodstream, oral must pass through and survive the onslaught of the digestive system. This often leads to lower potency and, in turn, less efficacy.

What can save Tetraphase now? There is a technology that might help Tetraphase overcome the oral administration problem, at least theoretically. It's called cochleates, created by Aquarius Biotechnologies and owned by Matinas Biopharma Holdings. Cochleates are little lipid envelopes that can be used to encapsulate antibiotics like eravacycline. Once encapsulated and taken orally, the cochleates are both protected from digestion and additionally recognized as foreign by the immune system. Macropahges then swallow them once they reach the bloodstream. Inside macrophages, cochleates unfurl by calcium diffusion, releasing the antibiotics within the immune cells that swallowed them. Since the immune cells automatically travel to the site of infection because they are attacking the bacterial infection anyway, they are now armed with antibiotic molecules inside them to cure the infection.

Cochleates accomplish two things in this way. First, they shield patients from unwanted side effects of antibiotics by keeping the antibiotic molecules encapsulated in an inert envelope and out of the bloodstream. Second, they concentrate the efficacy of oral antibiotics by having the body's own immune system carry the antibiotics to the site of infection without altering the molecule.

A Phase 1 safety trial for oral cochleated amphotericin B antibiotic in healthy adults has been completed, showing safety and no serious side effects at doses of up to 400 mg. This is encouraging given the normal safety profile for intravenous amphotericin B at lower doses. Amphotericin B is an emergency antifungal used as a last resort and has side effects including tremors, "shake-and-bake" and even death. Phase 2 is now being planned for patients with fungal infections to show efficacy.

If the Phase 2 trial succeeds, it will provide evidence that cochleates can protect against side effects and preserve the efficacy of oral administration of antibiotics. And if conchleates can accomplish that, they may be able to save eravacycline by helping it overcome the problem of oral administration.

If eravacycline succeeded intravenously in a Phase 3 trial, there is little reason it should not succeed orally, provided it is administered in a way that protects the active ingredient.

Read more: The Technology of One Small Biotech Can Save Tetraphase (NASDAQ: TTPH) - 24/7 Wall St. http://247wallst.com/healthcare-business/2015/10/15/how-the-technology-of-one-small-biotech-can-save-tetraphase/#ixzz3ph9bmTsY

Follow us: @247wallst on Twitter | 247wallst on Facebook

******

Amicus Therapeutics Inc. (NASDAQ: FOLD) had a 10% owner adding to a position this week. Perspective Advisors bought a 750,000 share block of the company's stock at prices between $6.34 and $6.85 apiece. The total for the buy came to an even $5 million. This biopharmaceutical company develops and commercializes therapeutic products for rare and orphan diseases. The stock ended the week at $7.58, so it appears to be a well-timed buy.

*****

HEIDELBERG, Germany, Oct. 14, 2015 (GLOBE NEWSWIRE) -- Affimed N.V. (AFMD), a clinical-stage biopharmaceutical company developing highly targeted cancer immunotherapies, today announced that an existing shareholder has increased its position in the Company by purchasing 3.3 million shares. The Agreement was signed on Oct. 9, 2015 and will lead to an investment of $21.8 million (EURO 19.2 million).

"This investment will help to ensure that Affimed is well positioned to achieve our goals and thereby create value for our shareholders," said Florian Fischer, Ph.D., CFO of Affimed. "We are grateful for this renewed long-term commitment, which is an important validation of our unique NK- and T-cell approaches via our proprietary bispecific TandAb technology."

Affimed has leveraged its expertise in next-generation bi- and trispecific antibodies to build a pipeline of unencumbered clinical and preclinical assets. Affimed's lead candidate, AFM13, a bispecific CD30/CD16A TandAb currently in Phase 2 development for Hodgkin's lymphoma (HL), has already shown signs of therapeutic activity as monotherapy after only four weeks of treatment in difficult-to-treat (salvage) patients. In addition, AFM13 has shown potential for synergistic efficacy in combination with checkpoint inhibitors in preclinical studies, where tumors shrank by up to approximately 90%. The Company's second clinical candidate, AFM11, a bispecific CD19/CD3 TandAb antibody, is currently in Phase 1 in patients with non-Hodgkin lymphoma (NHL) and acute lymphocytic leukemia (ALL). The additional capital secured through the existing investor's increased position will support continued development of AFM13 and AFM11, as well as earlier-stage programs such as the EGFRvIII/CD3-targeting T-cell TandAb AFM21 and additional NK-cell engagers.

*****

Deustche Bank's Ryan Todd and team wonder if the recent bounce in oil stocks like Chevron (CVX), Occidental Petroleum (OXY), Marathon Oil (MRO), Hess (HES) and EOG Resources (EOG) is sustainable:

Agence France-Presse/Getty Images

Recent E&P equities bounce a breath of fresh air but is it sustainable? The combination of macro events (US interest rate hike delays, dollar weakening, and a "less bad" China outlook) and industry fundamental improvements (increasing conviction on further capex cuts and US production declines) drove an impressive 25% rally in the EPX since October 1st (+16% post-recent consolidation). Despite signs of a moderate increase in interest from value-focused funds, we expect performance to remain choppy, with coming negative revisions, challenging valuation and commodity volatility still weighing on the near-term outlook. With 2H15 crude balances showing signs of improvement, however, we look at relative leverage across the group to a bounce in crude. Marathon Oil, Hess and EOG lead our group, with an estimated ~30% increase in 2016 CFO for each $10/bbl move in crude. Debt metrics are equally sensitive, with Marathon Oil/Hess YE16 Debt/EBITDA falling from 5.0x/4.5x at $45/bbl to 2.5x/2.3x at $60/bbl…

Yield analysis supportive of Integrateds (assuming cuts aren't coming) The Integrateds have seen their average yield widen vs. the S&P over the recent oil price-led downturn, with the discount moving from 50bps (through July , in 2014) to today's ~190bps (peak reached in late August, at 270 bps). Over the same timeframe, we've also seen the yield discount between the US Integrateds and the Euro majors narrow by ~45bps. While some dividends may be (or should be) at risk (e.g. Marathon Oil's), we believe the remaining dividends are safe, suggesting the Integrateds' current yields (vs SPX and Euro Majors and respective historical averages) are overly discounted.

Yes, it's the trough, but valuations remain a headwind While relative underperformance of the group the cyclical nature of the commodity suggest increasingly attractive value, cash flow multiples remain a headwind to aggressive outperformance by the group. We see the E&P sector trading at ~9.6x NTM consensus EV/EBITDA, vs. a long-run average of ~6.0x, with material downward revisions still to come for 2016 estimates (both commodity and activity/production driven). A relatively defensive skew has, however, seen Integrateds narrow the gap with E&Ps, where the multiple discount has narrowed from ~20% to 6%. We see the "washing out" of 2016 numbers as a necessary to the bottoming of the group, with 3Q15 earnings season likely to help reset 2016 expectations, providing an improved foundation for a more constructive 2016…

We continue to prefer Occidental Petroleum/EOG Resources amongst large-caps, Marathon Oil/Devon Energy for leverage to a bounce, and Chevron amongst yield-focused integrateds.

There is no iPhone without public funding. An economics professor strips our greatest innovators of their mystique

http://www.salon.com/2015/10/28/steve_jobs_didnt_build_that_the_truth_about_the_mac_empire_you_wont_learn_from_his_biopic_partner/

Lynn Parramore: We constantly hear that anything to do with government is incompetent and inefficient. Yet as you show, many of the industries and products that make our lives better wouldn't exist without government-funded research. The whole process of economic growth is hugely interdependent with governmental action.

What about something like the iPhone? Is it a product of Silicon Valley magic and the genius of Steve Jobs? Or is there more to the story?

Mariana Mazzucato: Economists have recognized that government has a role to play in markets, but only to fix failures, like monopolies, for example. Yet if we look at what governments have done around the world, they have not just stepped in to address failures. They have actually actively shaped and created markets. This is the case in IT, biotech, nanotech and in today's emerging green economy. Public sector funds have not only supported basic research, but also applied research and even early-stage, high-risk company finance. This is important because most venture capital funds are too short-termist and exit-driven to deal with the highly uncertain and lengthy innovation process.

I often use the iPhone as an example of how governments shape markets, because what makes the iPhone ‘smart' and not stupid is what you can do with it. And yes, everything you can do with an iPhone was government-funded. From the Internet that allows you to surf the Web, to GPS that lets you use Google Maps, to touchscreen display and even the SIRI voice activated system —all of these things were funded by Uncle Sam through the Defense Advanced Research Projects Agency (DARPA), NASA, the Navy, and even the CIA.

These agencies are all mission driven, which matters to their success, including who they are able to hire. The Department of Energy was recently run by Steve Chu, a Nobel Prize-winning physicist, who wanted the Advanced Research Projects Agency-Energy (ARPA-E) to do for energy what DARPA did for the Internet. Would he have bothered leaving academia to join the civil service just to "fix" markets? Surely not. That's boring.

LP: So what Steve Jobs and his team did was not central to the greatness of Apple?

MM: It's not that Steve Jobs was not a genius—of course he was! But the problem is that the narrative we tell around entrepreneurs like him, Bill Gates or Elon Musk is so unbalanced. We pretend that government at best was important for some infrastructure and basic science behind their empires. We see the new Steve Jobs film, which is based on a 600-page book where not one word mentions any of the public funding behind Apple's empire.

But the real iPhone story — or the story behind biotechnology — reveals a very different narrative in which government-funded research made the most exciting innovations possible. The same could be said of Elon Musk today —Tesla and Space X not only benefit from government-funded basic research through agencies like the DoE and NASA, but they have also, as companies, received high-risk investments by the public sector. Just one example is the $465 million guaranteed loan received by Tesla by the DoE. As recently shown by an LA Times article, the entire Musk empire has received close to $5 billion in direct and indirect support.

Do we hear about that? No. Is that "story" helpful for future innovation? No.

*****

23 October 2015

This week we repurchased Marathon in accounts $1 under our last profitable sale and added to Alcoa. The S&P 500 reached positive territory for the year on Friday after a strong two day rally that didn't help our accounts as much. That's because our out of favor retail and oil stocks did not participate and we were unfortunately plastered by VMware. Nevertheless we remain positive on the market outlook and, more importantly, the outlook for our holdings.

On Tuesday last we were reminded why Buffet doesn't buy tech stocks (because he says he has a hard time understanding them. Actually he owns IBM but that company was also shellacked this week when it disappointed). Unfortunately this time the reminder comes from one we own, VMware. We bought the shares two weeks ago at their two year low and added at the end of last week lower and again this week lower. Guru wisdom suggests selling a stock that drops 10% after purchase. We usually don't since we are buying out of favor stocks, but after the significant paper loss we are suffering we do understand the theory.

VMW announced better than earnings and revenues that meant nothing since the CEO warned going forward on future revenues. VMW also announced a joint venture with EMC that surprised and confused analysts. Those actions coming on the heels of the DELL/EMC/tracking stocks news caused 9 analysts to pull their buy and accumulate recommendations. The share price plunged 20%. Finally, at the $55 level (we own at $68 in most accounts) Jeffries decided that a cutting edge tech company priced at 15 times earnings (10 times net cash per share of $16) might be worth a look. Given that Cisco owns 5 million shares we hope we have a big brother looking out for minority shareholders. This is a hold till at least even situation.

Here with a sampling of headlines on the news to demonstrate the confusion:

VMware Plunges 16%: Business Eaten by the Public Cloud, Says Street

VMware Reports Solid Revenue and Earnings Growth

VMware Declines on Analysts' Rating Downgrades, Weak Bookings

VMware (VMW) Stock Sinks as Analysts Weigh in After Earnings

VMware delivers strong Q3 as CEO optimistic about Dell-EMC deal

VMware (VMW) Stock Up in After-Hours Trading After Earnings Report

VMware Barely Beats Third Quarter Estimates

VMware Stock Tanks As Merger Dims Growth Prospects

*****

3-D Systems dropped Friday on news that a competitor was having problems with revenues and earnings. That story is below followed by a story on how Nike plans to use 3-D printing to create and manufactures shoes.

Stratasys Guides Lower As 3D Printer Woes Continue

BY BRIAN DEAGON, INVESTOR'S BUSINESS DAILY

Weakness in the 3D printer market emerged again as Stratasys (NASDAQ:SSYS), late Thursday reported preliminary third-quarter earnings estimates well below Wall Street expectations.

It's the second quarter in a row that the maker of 3D printers has cut guidance.

The other large 3D printer provider, 3D Systems (NYSE:DDD), this year also has lowered guidance.

Read More At Investor's Business Daily: http://news.investors.com/technology/102215-777060-stratasy-3d-systems-third-quarter-earnings-guidance.htm#ixzz3pP1OSSxu

****

Revolution

BY ELAINE LOW, INVESTOR'S BUSINESS DAILY

Nike (NYSE:NKE) showed off several new products at its investor day on Wednesday, from iridescent shoes to tights with kinesiology tape-style elements that "reduce muscle vibration." But a significant driver for the athleticwear company might not be what it makes, but how it makes them.

Its newly announced design and manufacturing center, 3D printing partnership with DreamWorks Animation (NASDAQ:DWA), and manufacturing partnership with Flex are all part of Nike's self-proclaimed manufacturing revolution, which aims to ramp up the process of creating and bringing new products to market.

"NKE continues to uncover opportunities to drive innovation via its category offense and improved segmentation, but we were most encouraged by its manufacturing initiatives," wrote FBR analyst Susan Anderson in a Thursday note. FBR raised its price target to 126 from 120.

"It is combining product and manufacturing/supply chain development functions, which could be a powerful margin driver (accelerated product and automated manufacturing innovation)," she added.

The Manufacturing Revolution Will Be Digitized

Furthering its commitment to automation and 3D printing — already prevalent in its automatically knitted Flyknit shoe fabric — the company's Advanced Production Creation Center will be a 125,000-square-foot hub at its Beaverton, Ore., headquarters for designers, engineers and material scientists to create new products.

"Nike's gonna blow the socks off of automation," Macquarie analyst Laurent Vasilescu told IBD.

Footwear and apparel manufacturing is one of the most highly labor-intensive industries, he noted, and "pretty archaic" compared with other more automated industries. Cutting back on labor needs would take some pressure off the company's gross margin, he said.

In an upgrade from traditional cut-and-sew manufacturing, Nike said its budding 3D digital design system with DreamWorks will be capable of "nearly instantaneous digital print applications, photo-real 3D visualizations and ultra-rapid prototyping."

Hopes are high for 3D printers from companies like ExOne (NASDAQ:XONE), Stratasys (NASDAQ:SSYS) and 3D Systems (NYSE:DDD) to make a splash in the consumer market.

Stratasys and Adobe (NASDAQ:ADBE) announced a partnership last week to allow Photoshop Creative Cloud users to use Stratasys' self-service site to receive 3D-printed items within days. And 3D Systems makes a 3D photo booth, where users can make their own figurines.

Nike shares finished up 2.3% in the stock market today, hitting a record intraday high of 129.17. Shares of 3D Systems rose 3%, ExOne climbed 7.5% and Stratasys notched up 0.9%.

Saving $1 Billion In Costs

Aside from sounding very cool and futuristic, all of that 3D printing and automation technology has an additional purpose: to help save Nike money in leftover materials that don't wind up in the final product. The company said Wednesday that reducing waste alone could produce $1 billion in cost savings.

Read More At Investor's Business Daily: http://news.investors.com/business/101515-775797-nike-manufacturing-strategy-impresses-analysts.htm#ixzz3pP0DxMB9

*****

16 October 2015

This week the markets continued to work out their confoundment by first dropping and then popping. We did more readjusting selling Yahoo when it got back to even. We did this because we weren't inclined to buy any more when it dropped 10% after we bought it.

We also added BankAmerica on good earnings news. we added 10 low priced biotech stocks in small amounts to many accounts and also purchased Ascena 10% below our last sale price. We sold AT&T for a scratch profit plus the dividend and repurchased Twitter in accounts in which we bought VMware last Friday and this week.

We were blindsided by VMW when it fell 10% on Monday after we purchased it the previous Friday. VMW is 80% owned by EMC which is being purchased by Dell. As part of the deal Dell is going to issue some kind of instrument that tracks the price of the VMW shares that are public. At its present price VMW sells at just 16 times earnings which is very cheap on an historical basis. Cisco owns 5% of VMW shares and it will be interesting to see if CSCO objects to Dell's actions with VMW. As minority shareholders we don't have much control but maybe CSCO will assert itself. We don't like Dell controlling the company but we do think that value will prevail over the next year while the details of the merger are worked out and we will have a chance to exit at a profit if we so choose.

The markets continue to act as we thought they would this month. We remain positive and are enjoying the fall weather. Hope you are too.

*****

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.

http://finance.yahoo.com/news/american-eagle-vs-abercrombie-investing-112243830.html

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.

http://www.buzzfeed.com/sapna/the-family-ties-that-bind-urban-outfitters#.rg7nwnjl

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.

https://www.google.com/search?q=whole+foods%3Ahttp%3A%2F%2Ffinance.yahoo.com%2Fvideo%2Fcramer-remix-time-company-private-220000077.html&ie=utf-8&oe=utf-8

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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All SEC Rule11Ac1-6 Quarterly reports up to March 2, 2012 may be found by visiting the diclosures at LY& Co Clearing Broker Mesirow Financial at: http://www.tta.thomson.com/reports/1-6/msro/.

From March 2, 2012 forward all SEC Rule11Ac1-6 Quarterly reports may be found by visiting the website http://www.rbccorrespondentservices.com/cid-112218.html.


Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.


Business Continuity Plan

https://www.rbccm.com/usbrokerdealer/cid-207937.html

15624 Lemley Drive Soldiers Grove, Wi 54655 312-925-5248
The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.