Bud's Poem Page
  Katie's Route 66 Blog
  Katie's Coast2Coast Blog
  Katie's West Coast Blog
  Katie's East Coast Blog
Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 312-925-5248

Comments on activity in client accounts

ORGANIC FARM FOR SALE, 95 ACRES
Beautiful Horse Farm, Excellent Hunting Land, Perfect for Home-Based Entrepreneurs

18 September 2020

Today is quadruple witching ( https://www.marketwatch.com/story/what-will-quad-witching-mean-for-the-stock-market-trade-on-friday-11600371672 ) which affected market action yesterday and will affect action today and Monday. So, Tuesday may offer a better indication of market direction.

We have continued to buy so called recovery stocks as we believe Congress will pass a new Covid package (both Repubs and Dems -not to mention many folks- need it. We have spent most of our available dollars since we think the 20% and greater pullback in many of the overpriced tech stocks is warranted and that a move into left behind stocks is in the cards.

We currently own:

Tech- IBM, Apple, Intel Cisco, Western Digital and a small amount of CLOU- a cloud centered ETF.

Banks- we sold KBE and own Wells Fargo, Wintrust and Citigroup.

Drugs- Pfizer.

Industrial: Hexcel, Carpenter Tech (steel), Nucor (steel), NCR, GE, Ford, U.S. Steel and Hewlett Pack Enter.

Grocery/Drugstore: Albertson's, Sprouts and Walgreens Boots.

Retail: Starbucks, Abercrombie, American Eagle, Nordstrom and The Gap.

Miscellaneous: Boyd (gambling casinos) Lyft (people's taxi)

Utilities/Entertainment: AT&T, Excel Energy.

Happy Fall, the season not the market.

*****

Snowflakes in September:

The aptly named Snowflake on Tuesday afternoon priced an offering of 28 million shares at $120 a share, according to a person familiar with the situation, above the recently increased target range of $100 to $110 a share.

It's a clear demonstration of continued strong investor interest in both cloud-based software stocks and companies with very high top-line growth rates. The original price talk range on the offer was $75 to $85 a share.

With 277.3 million shares outstanding after the offering, the deal values Snowflake at $33,3 billion,

Snowflake, based in San Mateo, Calif., has been generating stunning growth, with revenue of $242 million for the six months through July 31, up 133% from the comparable year-earlier period, following 174% growth in the January 2020 fiscal year.

Snowflake raised $1.4 billion in venture capital from a group that includes Sutter Hill Ventures, Sequoia Capital, Redpoint Ventures, Iconiq Strategic Partners, and Altimeter Partners. CEO Frank Slootman, a former CEO at both ServiceNow and Data Domain, holds 15.2 million shares, a 5.9% stake worth about $1.8 billion. The company was valued at $12.4 billion in a private round earlier this year.

Concurrent to the offering, both Salesforce Ventures, an arm of Salesforce.com (ticker: CRM), and Berkshire Hathaway (BRKA) have agreed to buy $250 million of the company's stock in a private placement at the IPO price. Berkshire also agreed to buy another 4,042,043 shares from a current stockholder in a secondary transaction, also at the offering price. That puts Berkshire's total stake at $735 million.

https://www.barrons.com/articles/snowflake-ipo-prices-at-120-a-share-above-expected-range-51600210321?mod=hp_LEAD_1

*****

The NASDAQ 100 is down 14% from its high and weaker today. The IPO offering of Snowflake stock to the public markets and the hyperbolic market reaction to that IPO should act as a wakeup call for many market participants. While several of the CNBC TV gurus were euphoric about the potential for this IPO, the huge price pop in the shares from the IPO price of $120 to over $300 in the first hour of trading was nuts! There are plenty of attractive stocks but at $80 billion market cap with forecast $500 million in sales for the year-even if sales are doubling in a year- the market value for Snowflake is a reminder of March 2000 and Dotcom stocks.

For comparison, IBM' equity is priced at $110 billion in the marketplace. It has $14 billion in cash and $70 billion in debt. Interest cost for that debt last year was only $1 billion (1.4%). Net income last year was $10 billion. It is true that income has been flat over the last five years but it is also true that Cloud revenues have grown from $4 billion to $24 billion over the last 5 years.

The suggested reason for the price of Snowflake is that revenues in the first half of 2020 rose 137% to $250 million. Assuming SNOW does the same in the second half it will have revenues of $500 million. If it doubles it revenues every year for 5.5 years it will have revenues of $24 billion -what IBM has now after growing (I'm too old to remember how to figure rate of return) revenues from $4 billion to $24 billion over the last 5 years.

Furthermore, IBM is third behind Microsoft and Amazon in cloud revenue but rarely gets mentioned. Cloud revenues are now 20% of IBM's business. See:

https://cloudwars.co/cloud-wars-top-10-vendors-world/

https://cloudwars.co/ibm/ibm-cloud-big-growth-spurt-10-key-numbers/

https://www.forbes.com/sites/maribellopez/2020/08/12/ibm-fights-back-in-cloud-wars-with-specialty-clouds-highlights-enterprise-wins/#6330dea97e26

IBM Highlights for the second quarter include:

GAAP EPS from continuing operations of $1.52

Operating (non-GAAP) EPS of $2.18

Revenue of $18.1 billion, down 5.4 percent (down 1.9 percent adjusting for divested businesses and currency)

-- Cloud & Cognitive Software revenue up 3 percent (up 5 percent adjusting for currency)

-- Systems revenue up 6 percent

Total cloud revenue of $6.3 billion, up 30 percent (up 34 percent adjusting for divested businesses and currency)

-- Total cloud revenue of $23.5 billion over the last 12 months, up 20 percent (up 23 percent adjusting for divested businesses and currency)

Red Hat revenue up 17 percent (up 18 percent adjusting for currency), normalized for historical comparability

GAAP gross profit margin of 48 percent, up 100 basis points; Operating (non-GAAP) gross profit margin of 49 percent up 160 basis points

Net cash from operating activities of $15.1 billion and free cash flow of $11.5 billion, over the last 12 months

*****

Intel Versus Nvidia

Nvidia has a market cap of $320 billion. It is spending $40 billion to buy ARM a British CPU manufacturer. NVDA will have revenues this year of $14 billion and ARM has revenues of $2 billion. Intel a chip and CPU fabricator has revenues of $70 billion and a market cap of $215 billion.

NVDA's revenues have doubled over the last 5 years while Intel's have risen 50%. Net income for NVDA has quadrupled to $3 billion while Intel's has doubled to $22 billion.

NVDA sells at 60 times earnings; Intel at 10 times earnings.

*****

11 September 2020

New US jobless claims for the week that ended Saturday totaled 884,000, the Labor Department said Thursday.

That came in above the consensus economist estimate of 850,000.

Continuing claims, the aggregate total of people receiving unemployment benefits, totaled 13.3 million for the week that ended August 29. That was also higher than economist forecasts.

*****

Markets dropped; then rallied; then dropped this week led by the NADAQ which finished lower on the week adding to last Thursday's collapse. Tech stock P/Es and price to sales ratios are too high; have been too high for a long time; yet have continued to climb as they have become the only game in town.

We tried trading Apple and the XLK and QQEW this week but didn't have the stomach to continue and ended with a scratch overall. We would rather own Walgreen Boots at 7 times earnings with a 5% yield or AT&T at 8 times earnings with a 7% yield. Can't change the age spots on an old man.

This week we looked at Apple's financial numbers over the last five years. Net Income in 2015 was $72 billion. Net income in 2019 was $67 billion. Net income dropped yet the share price rose from $35 to $115. In 2015 Apple had cash on hand of $43 billion and in 2019 that cash had risen to $100 billion. But long-term debt rose from $53 billion to $91 billion so the net cash gain was $17 billion not $60 billion. Most of the cash spent went to share repurchases which lowered shares outstanding by 20%. Since earnings per share increased from $2.30 to $2.60 but net income actually dropped, it's obvious that the EPS gain can be attributed to shrinking shares outstanding not real earnings growth. Apple's earnings this year are expected to be $3.20 and $3.60 next year but we can't determine how much will be from share buybacks shrinking shares outstanding as opposed to real growth. And we would point out that in years of significant iPhone introductions net income has risen as much as 15% only to drop in the succeeding year.

Our superficial analysis isn't going to impress or rather depress the myriad Apple bulls (of 38 analysts, 33 have a buy recommendation) but they do lend perspective to the irrational rationality behind many of the market high flyers. And at least Apple has real and substantial earnings and sales and a lot of cash on hand unlike Shopify and Tesla, and Teledoc and DocuSign et al.

At week end we owned: The Equal Weight Bank ETF (KBE), Wells Fargo, Pfizer, Intel, Cisco, Western Digital, Hexcel, Walgreen Boots, Excel Energy, AT&T, AMC Entertainment, NCR, Carpenter Tech, Albertsons Grocery, Abercrombie, American Eagle, Bed Bath, Macy's, Hewlett Packard Enterprises, GE and Ford. Our cash position is much reduced because we expect some tech money to move to value over the next few months.

*****

Pfizer Analyst Vamil Divan reiterated a Buy rating and $43 price target on the stock Tuesday, ahead of the company's investor day next week, arguing that the market isn't giving Pfizer (ticker: PFE) enough credit for its drug pipeline.

Of course, Covid will be front and center. Divan writes that "updates on the timing of any potential interim analyses, plans for potential regulatory submission and how the company will navigate the unique challenges related to distributing the vaccine will also be closely watched." He has been impressed with Pfizer's progress on the vaccine, but notes that, while a successful inoculation would be a billion-dollar business in the next couple of years, it would ultimately taper off, "limiting the impact we believe the vaccine can have on helping Pfizer navigate the time period beyond 2025 when the company will be facing a number of important patent expirations."

https://www.barrons.com/articles/buy-pfizer-stock-analyst-strong-drug-pipeline-will-outshine-covid-vaccine-51599577065?mod=hp_DAY_5

*****

American Eagle Outfitters Inc. shares jumped Wednesday after the clothing and accessories retailer reported narrower-than-expected second-quarter losses and sales that beat expectations. Net losses totaled $13.8 million, or a loss of 8 cents per share, after net income of $65.0 million, or 38 cents per share, last year. Adjusted losses of 3 cents per share exclude COVID-19 expenses and restructuring charges. Revenue of $883.5 million was down from $1.04 billion last year. The FactSet consensus was for a loss of 18 cents per share and sales of $823.0 million. American Eagle's underwear and loungewear brand Aerie reported sales growth 32% and a record margin increase. Aerie digital sales more than doubled, up 113%, and overall digital demand grew 48%. Inventory fell 21% to $421 million. American Eagle has deferred its first-quarter dividend, which will be payable on April 23, 2021 to stockholders of record at the close of business on April 9, 2021.

https://www.marketwatch.com/story/american-eagle-shares-jump-after-sales-beat-expectations-2020-09-09?siteid=yhoof2&yptr=yahoo

*****

Bed Bath & Beyond gained Thursday, helped by a bullish endorsement from Wedbush, which argues that the market's skepticism about the home-goods retailer's turnaround is unwarranted.

Analyst Seth Basham reiterated an Outperform rating on Bed Bath (ticker: BBBY) and raised his price target to $18 from $15. He also added the shares to his firm's Best Ideas list.

Basham notes that the company has seen positive same-store sales in recent months, which could mean it's "on the cusp of a dramatic improvement in profitability": It looks like it will generate at least $700 million in Ebitda (earnings before interest, taxes, depreciation, and amortization) in two to three years, by his calculus. Yet "clearly, many do not believe in this potential transformation," attributing the comp rise to coronavirus-related demand and viewing its antiquated store base as "irrelevant in the eyes of consumers and is simply a melting ice cube."

He sees it differently. Basham thinks Bed Bath has a clear path to delivering $850 million in Ebitda by 2022 by adopting certain strategies.

https://www.barrons.com/articles/bed-bath-beyond-may-finally-be-on-the-right-track-heres-why-51599747349?mod=hp_DAY_Theme_1_2

*****

Abercrombie & Fitch second-quarter digital revenue climbed 56%, helping drive earnings beyond what analysts expected. The clothing retailer reported stronger-than-expected fiscal-second-quarter earnings, as soaring digital sales helped lessen the blow of the coronavirus pandemic.

Abercrombie shares recently traded at $12.05, up 8.3%. They had slumped 36% year to date through Wednesday.

In the quarter ended Aug. 1, Abercrombie earned $5.5 million, or 9 cents a share, swinging from a loss of $31.1 million, or 48 cents, in the year-earlier quarter.

Adjusted earnings per share registered 23 cents, compared with analysts' consensus projection of an 83-cent loss, according to a FactSet survey.

Revenue totaled $698.3 million, down 17% from $841.1 million in the year-ago quarter but topping the FactSet analyst consensus of $658 million.

"By managing to the tough current environment and our daily demand trends, we were able to grow our highly penetrated digital revenue base by 56% year-over-year to $386 million, expand our gross-profit rate by [1.4 percentage] points and leverage operating expense, resulting in robust operating-margin improvement," Chief Executive Fran Horowitz said in a statement.

"We ended the quarter with approximately $1.1 billion of liquidity, reflecting $187 million of operating cash flow generated in the second quarter."

Read more: https://www.thestreet.com/investing/abercrombie-earnings-exceed-estimates-on-back-of-online-revenue?puc=yahoo&cm_ven=YAHOO&yptr=yahoo

*****

A record 28 million options contracts have changed hands on an average day this year, up 45% from 2019, according to Options Clearing Corp. data. One investor factoring heavily into the activity is SoftBank Group Corp. The Japanese conglomerate bought options tied to around $50 billion of individual tech stock, The Wall Street Journal reported last week.

Options carry risks, especially with more-complicated strategies that go by colorful names such as Iron Condor. But straightforward bets against a stock, called a put, limit the downside when trades go south unlike shorting a stock that continuously rises. Read More:

https://www.wsj.com/articles/short-selling-stocks-proves-costly-for-some-investors-11599645600?mod=hp_featst_pos3

4 September 2020

"A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. With consistency a great soul has simply nothing to do. He may as well concern himself with his shadow on the wall. Speak what you think now in hard words, and to-morrow speak what to-morrow thinks in hard words again, though it contradict everything you said to-day. — 'Ah, so you shall be sure to be misunderstood.' — Is it so bad, then, to be misunderstood? Pythagoras was misunderstood, and Socrates, and Jesus, and Luther, and Copernicus, and Galileo, and Newton, and every pure and wise spirit that ever took flesh. To be great is to be misunderstood."

Emerson

*****

Investors watching the vertigo-inducing rise—and this week's fall—of technology stocks are buzzing about a single trade, a giant but shadowy bet on Silicon Valley big enough to pull the market up with it.

The investor behind that trade, according to people familiar with the matter, is Japan's SoftBank Group Corp., which bought options tied to around $50 billion worth of individual tech stocks. Investors and analysts, aware of the activity but in the dark as to who is behind it, say it has turbocharged the tech sector, whose sheer size drives broader market moves.

A SoftBank spokesperson declined to comment.

https://www.wsj.com/articles/softbanks-bet-on-tech-giants-fueled-powerful-market-rally-11599232205?mod=hp_lead_pos2

And then some big players must have decided it was time to get off the crazy train and many of the happy high flyers gave back 15% and more in the two-day end of the week retrenchment. In many cases that retrenchment only retraced gains made on Monday and Tuesday so no, the correction is not here. What occurs next week and beyond will tell the tale.

If this week's Thursday and Friday action continues the Congress and Trumpster may decide a stimulus package will fill the bill. If we head higher next week then...

In a few active accounts we tried to trade the bubble- should have known it was a top when we joined- and we were profitable Monday and Tuesday and Wednesday and then gave it all back and more on Thursday and Friday. Sic transit Gloria.

In many accounts we have been profitably trading Abercrombie, Macy's, American Eagle and Bed Bath. We did buy Cisco and KBWB on Thursday and then sold on Friday for a scratch when the rally failed Friday and we wanted more cash. We keep trying. Eventually money will move to value; we hope we are still alive.

At the end of business Friday, we owned:

Intel: 10X with a 2.8% yield

Walgreen Boots: 8X with a 5% yield

AT&T: 8X with a 6% yield

Pfizer: 12X with a 4% yield

Hewlett Packard Enterprises: 7x 5% yield

AMC Networks: 5X with no divd

Carpenter Tech: loss with no divd down from $50 in January

Albertson's Grocery: 6X with no divd

American Eagle: loss no divd and earnings next week.

Bed Bath: loss no divd

Hewlett Packard Enterprises: 7x 5% yield

General Electric: loss no divd.

Cash 50% and more.

And the beat goes on.

"Just the place for a Snark! I have said it twice:

That alone should encourage the crew.

Just the place for a Snark! I have said it thrice:

What I tell you three times is true."

Lewis Carroll: https://en.wikiquote.org/wiki/The_Hunting_of_the_Snark

*****

 


Comments on activity archives

2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001

FAIR USE NOTICE

This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.


Website Information

Check the background of this firm at https://brokercheck.finra.org/

For Information on RBC LLC SIPC and Excess SIPC protection https://www.rbcwm-usa.com/legal/rbc-cs/cid-319579.html.

For those clients of LY & Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending 09/30/2002 For Quarter Ending 12/31/2002 For Quarter Ending 03/31/2003
For Quarter Ending 06/30/2003 For Quarter Ending 09/30/2003 For Quarter Ending 12/31/2003
For Quarter Ending 03/31/2004

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 https://www.rbcwm-usa.com/legal/rbc-cs/cid-360855.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.rbcwm-usa.com/legal/rbc-wm/cid-277883.html?_ga=2.135033585.173888424.1512949149-1756823932.1512949149

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.