Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
Bud: 312-925-5248 Kathy: 630-323-8422
Comments on activity in client accounts
24 March 2017
We are on vacation till April 14;
We are writing this before the outcome of the TrumpCare bill is known. Our take is that the bill itself is an abomination but from a market standpoint whether it passes or fails the markets will react positively. That is because Trump has declared that his involvement with the bill is over and it should either pass or fail and then Congress should move on. If it passes the short term effect may be to drag out the contretemps since the bill will have to move to the Senate. If it fails Trump and the Repubs can move to tax cuts (which everyone will support because they always do) and to infrastructure spending.
During the week we added to Ascena, Kohl's, Target and Under Armour. As is obvious from account values our revisiting of retailers has been early. Last year at this time we were early on the oil stocks but those purchases-with some massaging-worked out well for us over the rest of the year. The retailer prices may not recover as fast as the oils but retailers are in much better financial shape than the oils were/are.
As is its want, the financial press has declared the death of retail and the mall. Surely malls anchored by Kmart and Sears and some by Macy are in trouble but new malls with other anchors are being constructed every year and, when the new take business, the old must suffer. Also, as we note below, the bad news for Sears and Kmart and PayLess shoes is good news for other retailers since $30 billion of buying power is being made available. Those folks aren't all going to Amazon since for years they have been going to run down Sears's stores to shop. They might enjoy the much more together stores that are left.
Many of the stocks we own and have been buying have been under such selling pressure that their prices have been pushed down to a level where their yields are attractive.
QUALCOMM 3.8%; Novo Nordisk 3.3%; Bristol Myers 2.7%; Ford 5%; Target 4.5%; Nordstrom 3.5%; Kohl's 5.8%; Macy 5.4%; American Eagle 3.6%; Abercrombie 7%; and Gap 4%.
Bad news for Sears is good news for other retailers. Sear still does $22 billion in sales each year. Other retailers will pick up that business.
Kmart, Sears face ‘substantial doubt' about finances as losses grow.
Once among the markets highest-flying stocks, Under Armour (UAA) has fallen on hard times ever since it announced that it wouldn't grow as fast as the market had expected. But has it fallen too far since then? Under Armour has dropped 54% during the past 12 months, making it the worst performer in the S&P 500 during that period, a sign of just how hated the stock has become. Jefferies analyst Randal Konik, however, upgraded Under Armour to Buy from Hold today calling it one of the "few brands that matter." He explains:
Comparing results of our updated proprietary survey of 2,000 consumers against those 3 yrs. ago show 1) the UA brand has strengthened, and 2) athletic apparel demand is robust. Our revised '18 EPS is 13% above cons., and our webscrapes, store work, and social trend analysis indicate to us an inflection has formed and the buying oppty is now. Our view is compressed valuation and neg. sentiment, ignore compelling growth over the next 2-3 years.
Investment Thesis: UA is one of the few brands that matter in the athletic space. It has significant opportunity to scale N.A., footwear, int'l, women's, and lifestyle LT. With valuation compressed and overly-negative sentiment, we see a buying level with significant upside.
10 March 2017
We've been adding to open positions as earnings are announced and stocks react. Abercrombie jumped 10% on Tuesday but then settled back and by Friday we bought at the pre earnings level. Stratasys dropped on earnings and we doubled our position. Oil has been under pressure all week and so we added to XOP and on Friday to Marathon Oil on its sales/ purchase announcement of Thursday. (See below).
Over the short run a bit more than normal stock ownership involves some risk since the overall market is high. But the shares we own are all on 2- 5 year lows as is usual with our buying out of favor issues. While our stocks will drop in any overall market correction we have sufficient funds to add or for client needs.
Oil slump continues (slumped last year at the same time although from a much higher level this year).
The best-selling vehicle among people making over $200K and $500K isn't a traditional luxury brand such as Mercedes, BMW, Audi, Lexus, Infiniti or Jaguar.
It's the Ford F-150. Yes, the pickup truck.
I elaborate on the reasons why: Safety, image, good for large and older people, luxury features that equal luxury cars - and style.
At $50,000 base and $64,000 reasonably equipped, the Ford F-150 Raptor is a luxury vehicle bargain. Small wonder it's the King of The Rich.
Ford's solid sales increases for the F-series trucks means that now it's one-third of Ford's U.S. unit sales (and larger share of profits).
Whether you're measuring people earning over $200,000 per year, or over $500,000 per year, their tastes in cars are astoundingly identical. In fact, their favorite car isn't a car at all, but a truck - the Ford (NYSE:F) F-150.
Although Urban Outfitters saw pressure in its Anthro segment, with margins compressing in the second half as well as a slight decline in UO's top line at the year end in 2016, Jefferies' Randal J. Konik believes the company "has high DTC penetration, is understored relative to peers and is differentiated in the marketplace."
The analyst maintains a Buy rating on the company. Read article: https://www.benzinga.com/analyst-ratings/analyst-color/17/03/9145886/risk-reward-in-urban-outfitters-a-perfect-fit-for-your-p
Ascena Retail Group Inc., which owns Ann Taylor, Dress Barn and Lane Bryant, posted a smaller loss than expected. Ascena reported its second-quarter loss widened to $35.2 million or 18 cents a share, from $22.6 million, or 12 cents a share, a year ago.
Marathon Oil announced today it has signed an agreement to sell its Canadian subsidiary, which includes the Company's 20 percent non-operated interest in the Athabasca Oil Sands Project (AOSP), to Shell and Canadian Natural Resources Limited for $2.5 billion in cash, excluding closing adjustments. Marathon Oil also announced the signing of a definitive agreement to acquire approximately 70,000 net surface acres in the Permian basin from BC Operating, Inc. and other entities for $1.1 billion in cash, excluding closing adjustments. The acquisition includes 51,500 acres in the Northern Delaware basin of New Mexico, and current production of approximately 5,000 net barrels of oil equivalent per day (boed).
Read more: https://finance.yahoo.com/news/marathon-oil-announces-2-5-070859928.html
Susquehanna upgraded Marathon Oil to outperform, while FBR Capital initiated coverage at outperform. RBC Capital hiked its price target to 21 from 20.
Marathon Oil stock was flat early Friday but jumped 8% to 16.07 on Thursday after it reached an agreement with Canadian Natural Resourses for the purchase of stake in the Athabasca Oil Sands Project.
Stratasys: beats but drops.
Profitable Companies, No Taxes: Here's How They Did It
3 March 2017
March came in like a lion in the land of milk and honey:
The horses know that this March snow
It's not the same as a month ago
For there is light where once was night
And the winds from west do blow
On the hillside our cows calf
And lick their shivering new born warm
Bellowing calves last week born
Suckle happily through the storm
The wood is plastered white again
And soon the bulging buds will leave
The early robin huddles near
Wondering why she came this year
Backing into wind and sleet
The animals are content to eat
And build the warmth from chewing cud
Than have to trudge through deep spring mud
My little dog does not care
As chasing squirrel and also hare
She barks with joy to just be free
Running where she wants to be
While off away from where we live
Pain and sorrow do abound
And make our short time in the wood
A sanctuary and treasured ground
We must face the world again
But first we'll sit upon the log
And contemplate a world of fright
As the light holds back the night
During the week we purchased Target on a 15% price drop; and we added to Deutsch Bank; American Eagle when it dropped 10% on earnings; and Ascena, ahead of earnings next week. We also repurchased Stratasys ahead of next week's earnings. We don't usually buy ahead of earnings but reaction to earnings in the last two weeks has been mixed with AEO dropping and Abercrombie jumping 10%, both having the same lackluster earnings reports.
We now own XOP, the domestic oil ETF; Marathon Oil; Qualcomm; Novo; Bristol Myers; Ford; Deutsch Bank; Hain Celestial; Under Armour; Sprouts Food; Stratasys; Ralph Lauren; Target; Nordstrom; Kohl's; Macy; Urban Outfitters; The Gap; American Eagle; Abercrombie; and Ascena.
We have a good cash position in accounts and we own these issues with room to add to any or all on a serious market pullback or a pullback in an individual issue.
Wall Street Scrambles to Change the Trump Narrative Again
Until yesterday, the prevailing Wall Street consensus was that in the absence of specifics from President Trump on his economic and fiscal plans, the market would be disappointed, and proceed to slide. It did not, in fact quite the opposite.
As a result, the world's best paid strategists have again - just like after the election - revised the "Trump narrative" after the fact, and now the prevailing analyst sentiment is that markets will like Trump's address to Congress as he cooled his rhetoric and likely gained political capital. As Bloomberg adds, the reflation trade, which has been boosting financials, held, even as the speech was short on details, forcing the U-turn in the plotline. Still, while turning tactically bullish overnight, there is an agreement that efforts on tax reform and infrastructure spending are likely a long, uphill slog, as those priorities may get squeezed by other agenda items, like health care.
Read article: http://www.zerohedge.com/news/2017-03-01/wall-street-scrambles-change-trump-narrative-again
American Eagle Outfitters Inc. suffered a comparable-store sales decline for its namesake brand in its latest quarter as the company said it faced a challenging retail environment.
Target suffers record stock price plunge:
BusinessInsider.com comments on Abercrombie:
Abercrombie can't stop talking about its Hollister brand. The company's executives mentioned it 22 times during its fourth quarter earnings call.
That's not surprising. Abercrombie & Fitch has continued to underperform for years while Hollister has remained its sole saving grace throughout.
Last year, Hollister helped the company reverse negative sales for the first time in years. And going by the latest results released on Thursday, the trend looks set to continue into the future.
Abercrombie reported earnings of $0.71 per share in the fourth quarter of 2016, compared to $0.85 per share for the same period last year, well below expectations.
On a yearly basis, the company earned $0.06 per share in 2016, way below the $0.51 it earned in 2015.
Hollister, however, painted a different picture with its consistently strong performance. Hollister's comparable sales for the 4th quarter were up 1%, against a negative 13% for Abercrombie as a whole, according to Joanne C. Crevoiserat, Abercrombie's chief financial officer.
"While we are not happy with our results, we are pleased with progress we continue to make against our key strategic initiatives. Hollister, our largest brand, is stabilized and continues to perform," Fran Horowitz-Bonadies, Abercrombie's chief executive officer, said during the call. "Despite the headwinds in Q4, our performance at Hollister demonstrated a potential for our brand, when brand voice, product and brand experience are aligned and attuned to our customer."
Importantly, the company is trying to replicate its Hollister success across its business. "We continue to apply our success and learnings from our experience with Hollister to the ANF brand and we are confident that with the right people and processes now in place, we will see greater traction on our revitalization plan for the brand," Bonadies said.
A year ago, Abercrombie posted its first positive quarter since 2012, so the latest results pose a setback—although the company's positive guidance for 2017 led to a surge of over 13% in its shares on Thursday.
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