Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
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New Year's Eve 2018
Given the selloff in many quality issues we have rearranged all the portfolios for 2019. Now we are going to take a few days. The next post will be Friday January 4 when we will review all our holdings.
Happy New Year- it will be better.
December Solstice 2018
The darkest day of the year is the perfect setting for the potential government shutdown and ongoing market collapse. The DJIA is down from 28000 to 22000 in the last month and that is a healthy needed pullback- enough to promote fear over greed and bring out the end of the world gurus.
The pullback in the high flyers has engendered the collapse of many stocks. As the high flyers are sold folks and hedge and mutual funds are realizing large gains and as a result are selling their losers (i.e. our value stocks) to offset the gains. This selling should end in a week.
The Fed disappointed by not saying that they would abandon their plan for discount rate raises in 2019. They did suggest that any raise would be data dependent but they wouldn't say that the economy was slowing which is what a lot of the talking heads wished them to say.
Trumps tantrum tweets are not helping.
The above are why markets are under pressure. It is not 2009- this is just a good auld fashioned scare the pants/skirts off pullback and we hope/wish/ think it will end soon- or when it does.
Naturally we wish we had waited to invest our sideline funds (and ignored oil); but even if we had waited till two weeks ago we would have been too early. Our oil stocks were purchased when they and oil had pulled back 20%. Now oil has pulled back another 20% as have the three oil issues we own. Since many other issues that we like have also pulled back the 40% that the oil stocks have, we reduced positions in all three and diversified into other areas. When the markets recover we will have more diverse opportunities to participate with these changes.
Many of our issues are down 25%% to 50% from their highs (we purchased after the initial 12% to 25% pullbacks). But we are not alone. To offer perspective we list below the drops in some of the wonder stocks of 2017-18. We have reduced their priced to double digits to offer a better comparison to the moves down in the companies we own.
Apple: $23 to $15 ($230 -$150)
Google: $12 to $9 ($1200-$900)
Amazon: $20 to $14 ($2000 - $1400)
Nvidia: $29 to $13 ($290-$130)
Facebook: $21 to $12 ($210-$120
Netflix: $42 to $24 ($420-$240)
The bearish computer programs will run their downside course and turn to the upside. Unfortunately, investing and market values over the short term are now at the mercy of the computer jockeys. Moreover the one decision market ETF investing being put to the test as those investors will be seeing significant drops in their portfolio values for the first time in three years. The DJIA is down 20% from its autumn high as so the $2 trillion in market ETFs is now at risk for liquidation which would exert more downward pressure on the markets.
We currently own:
AT&T with a 7% yield and priced at 8 X earnings at 5 year low.
GE has finally begun exploring ways to demerge.
Bristol Myers down from $70 to $50 and priced at 12X and 3.2% yield.
Celgene is at 7X earnings and down 40% for the year and a 5 year low.
IBM is 8X with a 5.6% yield on a 10 year low.
Whirlpool is off 60% on a ten year low with 4% yield at 8X.
General Mills off 25% this year, 5 year low 5% yield and 12 times.
International Paper at a 5 year low, 5% yield and 8X.
Citicorp also is on a 5 year low 3.5% and 7X.
BankAmerica is at 9X with a 2.3% yield.
Ford on a 9 year low 9% yield and 6 times.
GM below its 2011 first trade price and 5X with a 4.5% yield.
Hewlett Packard Enterprises is priced at 8X and 3.5%.
Micron (speculative) priced at 3X earnings.
AMD (speculative) priced at 35X.
Western Digital priced at 5X with a 5% dividend and a 5 year low.
DDD is a speculative trading stock.
Abercrombie is down 40% from high with a 4% yield.
Chico's is down 30% and 4% yields.
The Gap is down 25% with a 3.5% yield and 8X.
Marathon Oil down 40%.
Apache 10 year low and 3.7% yield and 13X.
Devon is on 10 year low.
Hain on a 10 year low and 13X.
Limited Brands is at 10 year low 4% yield and 9X.
Michael's Stores on an all-time low and 5 X.
Bed Bath at all time low 5% yield 10X.
Ascena is near all-time low.
CBS 6 year low and 1.5% and 8X.
Viacom 9 year low and 3% and 6X.
Roku is speculative.
United Natural Foods at all time low down 80% this year at 6X.
We are diversified with a great overall yield. We are well situated and wish all a Happy Christmas and hopefully a great recovery next year.
14 December 2018
The markets are running out of time for a Santa Claus rally as talk of a slowdown next year and Trumpian tariffs overcome intrinsic value in the value stocks as well as growth prospects for the high flyers.
One of the only glamour stocks with strength is Tesla which is ridiculous or a symptom that pie in the sky analysis has not disappeared. Supposedly Tesla is growth stock that deserves to be priced at two times the value of Ford because growth will allow it to earn the $7 billion Ford will earn this year- Tesla hopefully in ten years from now. Thus are the vagaries of Mr. /Mrs. Market.
During the week we sold Caterpillar flat, QUALCOMM for a scratch loss, and Goldman Sachs for a scratch and initiated holdings in GM down 20% and General Mills off 33% both of which yield 5%. We also began gingerly buying Roku – down from $85 to $35 in three months in accounts.
We have given back all our gains for the year and then some and we are not happy campers. But the stocks we own will survive any downturn-including GE, (see below). We still expect a rally when portfolio dressing and tax selling relieves downward pressure.
GE made a 15 year low of $6.66 on Wednesday and on Thursday the analyst who has been correctly bearish on GE all year raised his rating from Sell to Hold. Hooray. A one day pop quickly receded but we believe the 666 (also the low on the S&P 500 in March 2009) price and the upgrade may have placed a bottom in the $6 range on the shares.
STOP TRADING! Tusa Goes from Sell to Hold GE...the bottom is being put in. Congratulations to one of the most amazing, incredible calls of a lifetime, to sell GE... by Steve Tusa from JP Morgan. Research at its best. Maybe best ever..
— Jim Cramer (@jimcramer) December 13, 2018
The downfall of General Electric Company (NYSE: GE) has continued in this month, but one analyst says GE stock has finally become a value for long-term investors. Read more:
Jim Cramer in this essay he is right on the mark:
The Common Stock Buyer Seems to Have Disappeared. We have, for lack of a better term, what acts to be a 'broken' market - both ways - because the volume is so thin.
Dec 10, 2018 | 11:49 AM EST
Stocks quotes in this article: FDX
They opened it too high again and there was no reason to do so. Who are these buyers of the futures who come in on quicksand? Who are the people who can't resist buying when stocks are running and run from stocks when they are down?
We have, for lack of a better term, what acts to be a "broken" market - both ways - because the volume is so thin. Read more:
Shares of Apache Corporation have been on the red territory for a while now, with its shares declining around 14% over the past year.
In the past month itself, the stock has declined more than 6%. In fact, the share price, which closed at $35.04 yesterday, is quite close to the stock's 52-week low of $33.60. While the recent pullback in crude prices along with pipeline crisis in the Permian play are weighing on the stock, we believe that the Houston-based energy explorer still holds much promise, as is validated by its Growth Score and VGM Score of A.
What's going against Apache?
Notably, the three-year oil industry downturn due to the global supply glut had hit Apache hard. The company slashed its capital expenditure budget in wake of commodities slump to realign itself with the changed dynamics, which adversely affected production volumes. In 2017, Apache's production averaged 349,717 barrels of oil equivalent per day (BOE/d), down 10% from 2016. Contracting output volumes are especially bad for independent production firms unlike integrated majors who have refining and marketing segments to fall back on. Despite the crude uptick for most part of this year, Apache is yet to recover from its long string of negative free cash flows. Read More:
Tesla and Autopilot:
The Autopilot feature lets ( a Tesla) change lanes by itself. Stahl's wowed reaction—"Oh my goodness"—matches that of many people when they first see the Tesla take control of its steering and speed. But her questioning, trying to gauge Musk's involvement in the driving process, highlights a significant issue Tesla faces as it rolls out ever more advanced Autopilot features.
A growing body of evidence makes clear that many drivers are confused about what the car can and can't do. Tesla has repeatedly insisted—with spokesperson statements, driver manuals, and on-screen warnings in the car—that Autopilot is not an autonomous system. It doesn't even see stopped firetrucks. The human is always responsible, and should keep their hands on the wheel. Yet, on one of the country's most popular news programs, Musk risked compounding the confusion by clearly not even touching the steering wheel, and agreeing that he wasn't driving. As he put it: "I'm not doing anything."
Musk has explicitly said the cars have the necessary hardware to be genuinely self-driving (they don't even in some fantasy), that they just need a software update (always around the corner), and that unspecified regulators and regulations are really the barrier. When an accident happens they'll say the driver is at fault for not obeying the fine print.
I get hyping your product, but this goes beyond that. Something is not right with this guy.
Shares of Roku have been pulverized over the past few months, despite running an excellent business. We've now seen Roku stock get cut in half from the highs it made just nine weeks ago.
Does it really deserve such a decline? Not really. One could argue that Roku shares were overvalued and many bulls would concede the fact that it wasn't cheap. That said, it's operating in a secular business environment.
Investors already know that streaming isn't a flash in the pan; this trend is here to stay.
Finally, more Sears's news:
7 December 2018/ Pearl Harbor Day
Well, no one ever said it would be easy. We continue to invest in stocks that offer value and we have expanded our universe of issues owned to include large Cap companies that have been under pressure. With markets flat on the year the shares we own and are purchasing are down 25% to 50% from their highs this year and many are at multi-year lows.
We can't predict what Trump will twitter next. But it is obvious that the big boys and girls and their computers are having fun with his tweets that are roiling markets as their computers feast on volatility or at least are the proximate cause of the 2% intraday movements.
Coupled with the rush to the doors by FAANG (Facebook, Apple, Amazon, Netflix, Google) holders (and other wonder stocks) who bought the hype and are now reaping the losses or longer term holders who are attempting to lock in still remaining prices the mood of Mr./Mrs. Market remains sour. Interestingly- with the major market measures flat for the year, the go go stocks (1960s term) are all coming back to earth. Apple is down 20%, Facebook -40%, Amazon -20%, Google -20%, and Netflix 20%. Square is off -30%, Roku -40%, Alibaba -25%, Nvidia -40%, Applied Materials -40%, Salesforce -15%. All except Google and Apple are still priced for perfection but the pain is real for many day traders who didn't hop off in time.
There is pain even for those of us who didn't chase the rainbow but felt many stocks were fairly valued. Those stocks we bought are now more fairly valued. ☺
the possible inversion of interest rates (short term rates are higher than long term rates- for example a two year maturity Treasury would have a yield of 3% while a ten year Treasury would have yield of 2.9%) the mavens are worried about recession because past inversions have preceded recession. our take is that in past cases interest rates were twice what they are now and inversion was more meaningful because of that. Also the increase of computer trading and algorithmic computers programmed to make decisions on past data can create inversions trading without affecting the economy.
Coupled with yearend tax loss selling and portfolio primping the markets are volatile and the Trumpster is not helping.
As with Mexico and Canada we think Trump will continue to create his daily reality shows vis a vis China but in the end he will settle with Chairman XI and declare the best most wonderful all-time stupendous trade deal ever negotiated in the history of the world and Universe. Until then volatility remains.
We currently own:
AT&T: down 30% from its yearly high, priced at 10X and yielding 6.3%.
GE is off a bunch and in the dog house. It is an oversize position that we will reduce in the New Year when selling pressure abates and its share price rises. Why GE is priced where it is:
Bristol Myers Squib: - 20% and prices at 13X with a 3% yield.
Caterpillar: - 30%, 8X and 2.7% (traded twice already for 10% profits each time)
IBM down 35% 8X and 4% yield. Has as large a cloud business as Microsoft and Amazon and earns real dollars. Down in part because Buffet sold.
Whirlpool: down 35%, 8X and 3.8%.
International Paper: off 20%, 8X and 4.4%. Think Amazon boxes.
Goldman Sachs: lower by 35%, 7X and 1.7%
BankAmerica: off 20%, 10X and 2.6%
QUALCOMM: down 20%, 14X and 4.4%.
Micron Tech: down 40%, 4X and 3.6%.
AMD: -35%, 40X and 0%.
Western Digital: -60%, 6X, 4.7%.
3D: -42%, ~X, 0%
Abercrombie: -30%, 20X, 4%.
Chico's: -35%, 17X, 4%.
The Gap: -20%, 10X, 3.2%.
Marathon Oil: -25, 20X, 1.2%.
Apache Oil: -30%, 16X, 3%.
Devon Energy: -33%, 17X, 1.1%.
Hain Celestial: -40%, 16X 0% 15 year low.
Ford: -30%, 6X, 8%.
Ascena Retail: -42%, ~X, 0%.
The story below suggests stock picking has underperformed broad market ETFs for the third year in a row.
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