Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
Comments on activity in client accounts
29 June 2018
Today is the anniversary of our partner of 40 years Kathy Cannova's unexpected death last year. She was a wonderful partner, and friend to our family and many, many others. We miss her every day and will miss her every day for the rest of our lives.
Walgreen was banged down to $59 this week even though it announced better earnings and revenues. Amazon bought an online drug provider that is licensed in every state and that was it for the land based drug stores. Walgreen's is a great company and will react appropriately (have its own online website) but we are glad that we took much less of a loss last week selling at $67 when the share price popped on news of addition to the DJIA. WBA is on our November list for buying.
We took a trading profit in Verizon on Monday and we traded a few stocks- MRO, WDC ANF -this week with flat results. We expected a better rally after the down days of the 9 days for the DJIA and when no strength materialized we sold. We also reduced our Hain position again to bring it in line with our other holdings; repurchased GE after they announce their reorg plan; and added to AT&T, F, and HPE.
We remain over weighted In AT&T with its 6.3% dividend. Once the adjustment of positions for Time Warner shareholders (selling by those who don't want to hold the T they received in the merger) is completed we expect the shares to move up to $40.
We currently hold: AT&T, Chico's, Ford, Hain, Hewlett Packard Enterprises, Michel's Stores and GE.
Stay as cool as you are.
23 June 2018
The DJIA moved back to even for the year this week as the markets suffered 8 straight down days in the DJIA until the DJIA closed higher on Friday.
On Tuesday it was announced that Walgreen's Boots would be added to the DJIA to replace GE (☹), and when the share priced popped $2 we took our loss and moved to the sidelines. Many accounts are flat to plus on this year's trading in WBA. Our Guess- and it is only that - is that the share price will drop back once the ETFs, mutual, and hedge funds that mirror the DJIA finish replacing GE with WBA.
Hain Celestial shares rose all week and on Friday they popped $1.50 to $30.75 on news that Pilgrim's Pride, the chicken folks, were close to purchasing Hain's protein division for $700 million. (Hain only has $700 million in debt). Surely no one knew talks were occurring. ☺
An online story suggested that Nestle is interested in purchasing Hain once the protein division is sold. We traded Hain earlier this year, once for nice profit and once for a plus scratch. Then we reentered at too high a price and we have been adding shares as the priced dropped to $25. With our sale of half our overly large position at $30.70 for a plus scratch we now own shares at $27 to $32 with the company trading at $30 and have a much more comfortable position.
We used a portion of the Hain funds to repurchase Hewlett Packard Enterprises for a trade. We've had good luck trading HPE this year.
We sold United Natural Foods for a $1 gain on Wednesday.
We now own AT&T (very large position), Verizon (large position), Chico's, and Ford, Hain Celestial (large position) Hewlett Packard Enterprises, Michael's Stores and a good chunk of cash.
Pilgrim's Pride is bidding for Hain Celestial's protein business, a source close to the process told The Post.
Hain, run by CEO Irwin Simon, is in the process of selling Hain Pure Protein, its chicken and turkey division, to make its remaining snack food company more attractive to a buyer, an informed source explained.
Pilgrim's Pride has made a preliminary offer for the business, which sells to Chipotle and Panera Bread — as have others, sources said.
Final bids in the auction for the unit of the natural foods company are due in mid-July, sources said.
The development in what some insiders thought would be a difficult sale is positive for the Long Island maker of Celestial Seasonings teas, Terra chips, Garden of Eatin', Rudi's and Earth's Best, sources said.
"It seems like they have a real bidder," a source close to the auction said, adding that at least one suitor who bid a relatively low price was thrown out of the auction.
The division, which sells its products under the Plainville Farms and Freebird brands, generates $475 million in revenue and $40 million in EBITDA, representing 15 percent of Hain's total profit.
Walgreen's Boots & GE
15 June 2018
On Monday we sold AT&T at $34 for a plus scratch for most. We did this because the judge was going to rule on Tuesday and we wanted to be flat going into the decision.
On Tuesday the court approved the merger without reservation and the share price immediately dropped below $33 as the arbs began shorting AT&T with alacrity.
The reason for the shorting is that the arbs could lock in a 2% -4% profits. How? The deal calls for AT&T to issue 1.473 shares of AT&T common plus $53.75 for each Time Warner share. If AT&T is selling at $33 that equals a value of ($33 X 1.473shres plus $53.75= $102.35) if the deal goes through. If an arb can buy Time warner for $99- at which price it was trading when AT&T was $33, the arb will lock in a $3.25 profit when the deal closes. The deal closed today, three days later.
Now that the deal is completed much of the pressure on AT&T should resolve since the arbs will deliver the AT&T shares they receive by tendering their Time warner shares to the brokers from whom they borrowed the AT&T shares to sell short against the short sale positions they created.
There will be folks who owned Time Warner who don't want to own AT&T but the 6% dividend should limit that number.
We reestablished our position because the shares yield 6% at the price we repurchased and even though AT&T is taking on more debt it has sufficient cash flow and we are interested in the synergies (good analyst word) of the combined companies. Cell phones are the personal computers for the younger folks and soon there will be only 3 major cell phone companies.
During the week we repurchased Michael's Stores, the craft folks, which we sold last month for a plus scratch when we were raising cash. MIK dropped 15% on Thursday to $18 even though their revenues and earnings were better than. Same store sales were up less than expected by 0.30%- OMG!!!
We also repurchased Verizon with a 5% yield and added to AT&T, Walgreen Boots and Hain Celestial.
We reduced our Chico's position by half when it failed to continue its rally. We have had good results trading the stock and decided we were pressing a bit too much.
Remember, the top of the market in 2000 was in March when AOL completed its acquisition of Time Warner. Microsoft is now trading at 50 times earnings; Amazon at 140 times; Adobe at 50 times; Boeing at 25 times; Salesforce at 60 times; and of course Tesla at infinity times earnings and more than the market value of either GM or Ford.
Markets don't repeat but they sometimes do rhyme.
SEC person says bitcoin is not a security so- hey folks you're on your own if you want to trade it.
8 June 2018
Last Friday we bought Abercrombie and traded out of it on Monday when we thought better of the purchase. We have earned $500,000 for client this year in the stock and we bought early Friday when ANF announced earnings and same store sales were better than. Unfortunately the Gurus- or some big players - decided to sell big chunks of stock on Friday and we ended the day down 10% on our morning foray. There is saying that the reaction to the news is more important than the news. When the shares popped on Monday, we –after a sleepless weekend- used the action to exit our position with a plus scratch. The shares have subsequently moved higher but then we remember the other saying about bulls and bears and pigs.
During the week we also sold Hewlett Packard Enterprises for a plus and selectively added to positions in the five issues we won: HAIN, Ford Walgreens Boots, AT&T and Chico's. On Friday we bought shares of United Natural Foods in larger accounts when it dropped on better than sales and earnings and a positive outlook. Yes, the outlook was positive but the shares dropped in price. UNFI was trading at $47 a few weeks ago and we bought at $39.80. We've watched the share price do this numerous times and decided to take and anchovy fling.
Our large accounts have excellent cash position; and are smaller accounts are concentrated in the sleep at night issues we own (Ford, HAIN, WBA, T, and CHS).
The markets continue on their merry way and we continue to be cautious.
1 June 2018
We did more rearranging this week with our market exposure and the issues we hold... the markets are vacillating at all time highs and the $20 Trillion questions is whether they are working off the overbought condition by trading sideways for a while longer or preparing for a late summer swoon.
The economic numbers remains very good; and earnings for the majority of companies are rising. Unfortunately North Korea and Trump tweets are providing daily reasons to worry. Also political and economic events like Italy's elections and on again off again tariffs have provided the opportunity for one- three day panics followed by "Oh Well, I guess that didn't matter".
Last year we unsuccessfully ignored Mr. Market by investing in retail and oil in the early spring and suffered mightily. Happily we were able to get back to even or up a bit at year end by repurchasing a few of 2017 spring through fall dogs at lower prices in November and riding the end of year tax selling rally.
This week we finally realized that - in the market environment that now exists - when the markets turn sour on good quality stocks that are out of favor it is best to watch and wait till autumn to initiate any trading positions. Think GE, Campbell, General Mills, Newell, Viacom etc. Out of favor stocks just don't work for trading purposes till late autumn
And so during the week we took the loss on Deutsch Bank which we have been mostly unsuccessfully trading for the past few years. Every time we buy back at prices lower than we sold the time before (we began investing at $28 and did have a little success last year trading between $14 and $19) - the bank announces another billion dollar fine or the WSJ tells of DB being on the Feds bad person list.
What we own:
AT&T yields 6% and is at this level because Mr. Market doesn't like telephone stocks and more importantly because there is an arbitrage situation where hedge funds are shorting (selling stock they don't own thus forcing the price down) AT&T and buying Time Warner hoping that if the AT&T/Time Warner merger (currently in court) goes through they will realize a short term 20% gain.
Our thinking is that if the merger fails, AT&T will rally as the hedge funds have to cover their short sales. And if the deal goes through AT&T probably will remain at this level for a while but then will move higher as the markets realize that the deal is a good one. And we will earn a 6% dividend while we wait.
Abercrombie & Fitch today announced excellent revenues, same store sales numbers and a better than loss (ANF usually loses money its first quarter). We have been trading the stock for years and have had excellent results over the last six months. Retail is back in favor as analysts decided that Amazon is not going to put them all out of business soon. The big boys and girls began piling into retail early this year because the sales and earnings numbers gave lie to the proposition of Amazon devastation and as short sellers began to cover and the buy side began recommending many retailers doubled in price.
Last fall Abercrombie dropped to $9 and topped in May at $28. Because folks and the media are wooed by the image of large numbers that is like an $90 stock going to $280 or an $900 stock going to $2800. Take that FANGsters
Today we repurchased Abercrombie at $23.50 (we sold at $26 a few weeks ago and $28 a few weeks before that) in all accounts that owned The Gap which we sold for a scratch (because we think ANF is much cheaper) to fund the purchase and limit our retail exposure. Abercrombie yields 3.8%
We have been trading Chico's profitably for the last six months and we repurchased it this week at $8 when it dropped $2 a share on earnings and revenues that we thought were fine but which the street obviously didn't. It is an anchovy- but a quality anchovy. CHS yield 4%
We re-entered Ford during the week. Analysts have been warming to the shares and maybe…. We have tried trading the issue but we plan with the 5% yield to give F time to perform for us.
We traded Hain Celestial profitably earlier this year but now are well underwater in the issue with our latest purchases. This is as low as the stock has traded in 7 years. HAIN is being valued as a run of the mill packaged food stock like Campbell and Kraft Heinz that are also at multi years lows. The difference is that HAIN is a leading organic food purveyor and at a 50% higher price would still be an attractive takeover. No yield.
In January we realized a nice profit from Hewlett Packard Enterprise and are own again as a quality anchovy with a 2.5% yield.
Walgreen's Boots is cheap. If Amazon wants to go into the drug providing business Bezos should buy WBA. The purchase at any price would be accretive to earnings.
(Reuters) - Abercrombie & Fitch Co (ANF.N) shares fell 9 percent on Friday after the apparel retailer said efforts to revamp its namesake stores were yet to show significant gains in customer traffic.
Abercrombie's eponymous brand has seen higher demand this year after having struggled for the past five years, thanks to revamped stores and new advertisements.
But the company suggested those efforts may not be enough to connect with today's young shoppers - a demographic which made the brand famous in the 1990s…
Both the Abercrombie and Hollister brands topped Wall Street expectations for same-store sales, while the company's net loss was much smaller than expected.
"If you look at the fundamentals and you look at the financial results, they were better than …
The company's net sales rose nearly 11 percent to $730.9 million exceeded Wall Street estimates. Abercrombie expects current-quarter revenue to rise in the high-single percentage digits.
Net loss attributable to Abercrombie & Fitch narrowed to $42.5 million from $61.7 million a year earlier.
Excluding time items, Abercrombie reported a loss of 56 cents per share, smaller than the 77 cents analysts were expecting.
Ford's 'Fortress' Balance Sheet, Accelerated Targets Win over Jefferies
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