Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
Comments on activity in client accounts
27 January 2018
Markets continued higher during the week as the everything is wonderful rally continued. We added United Continental Airiness and P&G as trading stocks and also repurchased Ford and GE at a level 15% below where we sold earlier this month as both companies dropped. We had a one day change of mind with Baker Hughes GE when we decided that owning GE was enough of a commitment to a company that no one but us thinks has long term value. We used the BHGE money for the Ford repurchase to keep our cash levels at 75% in large accounts and over 50% in smaller ones.
We currently own at&t (5% yield); P&G (3%); UAL ((0%); Campbell (3%), GE (3%): and Ford (5%).
Buffets recent comments on GE:
More on GE
The analysts love Tesla and hate Ford which is an indication that most of these analysts were in grader school in the year 2000. Notice that Musk's compensation is based on market value not earnings.
Baird Equity Research analysts Ben Kallo reiterated an Outperform rating on Tesla with a $411 price target.
Baird views the compensation plan favorably, considering both the payroll and profitability implications of the terms.
The plan requires Musk to be either CEO or both executive chairman and chief product officer at the time of cash-in, which "should ensure Elon Musk's continued leadership over the long term," Kallo said in a Wednesday note. At the same time, it incentivizes the achievement of critical financial milestones for Tesla, including an incrementally increasing market cap toward $650 billion, a revenue boost from $20 billion to $175 billion and an increase in adjusted earnings before interest, taxes, depreciation and amortization from $1.5 billion to $14 billion.
"This is one of the first times TSLA has provided long-term profitability targets, and we think shares would appreciate significantly if TSLA were to achieve its adjusted EBITDA milestones," although not necessarily to a $650 billion market cap," Kallo said.
So not only will Tesla retain its critical leader, but it will also increase shareholder value as it inches toward profitability, according to Baird.
Ford has the revenue/EBITDA/numbers (Ford has $154 billion sales; $16 EBITDA; $4 billion earnings and $15 billion cash on hand excluding Ford Credit) this analyst is looking for Tesla to have sometime way in the future when he says Tesla will be valued at $650 billion. Ford is valued at $45 BILLION. Like anno domini 2000 we are in the era of the one decision investments that will grow to the sky.
Tesla's market cap is currently 1.5 times Ford and Tesla can't even build the 5000 per month Model 3 cars it promised last June. We know we can bluster until we are blue in the face about the mispricing and Mr. Market won't care. But in this overheated environment we have to stick to our value premise and hold a lot of cash.
And poor Ford with a 5% yield remains in the dog house.
Smoot Hawley Redux
And so it begins
LG Electronics Inc. has told retailers it plans to raise prices on its laundry appliances following President Donald Trump's approval this week of steep tariffs on imported washing machines.
12 January 2018
With large accounts up for the 13 month period and small accounts close to or above even for the same time frame we did some selling to get back to a comfortable cash position.
In October last we were down 12% in large accounts and 20% in smaller ones due to investment missteps. We decided at that time to buy a group of depressed retailers and other issues that were priced at value levels.
Happily our trading decision worked and we now have sold those anchovies.
We now own:
AT&T (it has dropped back from where we sold in November/December), Macy's, Celgene, Merck, Campbell Soup (for a trade to $50), GE (Buffet should buy), Ford (maybe this year?), Deutsch Bank (by far the cheapest money center bank), Newell Cos (Rubbermaid and thousands of other household products), Hewlett Packard Enterprises, Western Digital, and Marathon Oil (need to own some oil) and half our yearend Rite Aid position.
With oil at $70- can $4 gas be far behind?
The Sherriff of Nottingham was a piker compared to these Alabama sheriffs.
With this hand Wal-Mart gives- with the other hand- no so much L
5 January 2018
At the beginning of 2017 we considered going to cash for the year. But we thought that was a too drastic step and so we moved funds to oil and retail which we considered undervalued. We were wrong for 10 months.
But by reevaluating we were able to regain our footing and we expect to be in a lot larger cash position by March- hopefully ahead of the correction that we've been wrongly expecting for 15 months. Thankfully by today we have recovered a good deal of our unrealized losses that our accounts had at the end of October.
In the last two months of 2017 we overloaded on depressed value stocks and with the rally this week in those issues as tax selling abated and new investors entered looking for value we unloaded a bunch of those same issues at 5% to 25% gains.
This action has allowed our large accounts to recover to up/down 3% for 53 weeks. While we underperformed the major indexes and averages by a great deal we are relieved to have recovered as we have.
We expect to be slightly ahead for the 13 months by the end of January in our large accounts and hopefully flat to a bit better in our accounts under $100,000. The smaller accounts have recovered from deeper drops but still remain down 10% even with the rally over the last few weeks.
We did have one client whose account we had managed for over 15 years (through the collapse of 2008 when his account was only down 15% versus the S&P down 40%) who decided to move his $2 million account in the beginning of November. The account was down 10% on the year ($224,000) and while we understood his disappointment with our missing the markets' move we suggested he wait for a few months because we thought the depressed value stocks we owned at the time (AT&T, VZ, GE, American Eagle, Kellogg, etc.) would recover heading into the new year. We also told him that the bank trust department to which the funds were moving would invest in market ETFs where the move had already occurred and his chance of recovering his losses would be hindered by the lack of consistency in the bank's approach versus our value oriented investing. He disagreed and moved the account. In order to accomplish the move that bank had us reduce the account to cash. As of today the stocks we held in the account are up $210,000 from October 31.
We relate this story to demonstrate that consistency in an investing approach works. Markets rotate and when one investment theme suffers eventually the pendulum swings and allows that investing approach to work – at least it has in the fifty years we have been in the markets...
After our sales we own:
Macy's; Chico's; Ascena Retail (Anne Taylor, Lane Bryant Justice); Merck; Celgene : Walgreen Boots (added to this week when dropped on earnings-see below);Rite Aid; General Electric; Ford; Deutsch Bank; Newell; Hewlett Packard Enterprises; 3D; Stratasys; Campbell Soup and Western Digital.
We present, you decide whom to believe: ☺
Walgreens Tops Q1 Views or
Walgreens' weak retail sales, gross margins hit shares or
Walgreens Boots Tops Q1 Earnings, Margins Decline or
Walgreens Slips on Earnings Miss or
Pressure's On CVS As Walgreens' U.S. Pharmacy Sales Rise
Rite Aid Q3 Earnings Beat, Stores Transfer on Track
Macy's holiday same-store sales rise; to close stores, cut jobs
Macy's raised its full-year EPS guidance, which takes the recent tax bill into account, from $3.38-$3.63 to $3.59-$3.69, and narrowed its full-year comparable sales guidance range on an owned basis from -2% to -3% to between -2.4% and -2.7%.
Deutsche Bank to Take $1.8 Billion Hit From U.S. Tax Reform
OOPS, Intel fesses up.
Ripping off the sick- or why drug companies never find cures since continuing therapy is so much more profitable,
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