Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
Comments on activity in client accounts
17 May 2019
We will be traveling next week so the next post will be May 31.
During the week we added Intel and Huntington Bank, both of which we have traded profitably this year from the price levels at which we repurchased.
We also repurchased Bristol Myers slightly under where we last sold. Hopefully the third time will be the charm. As the Celgene merger becomes closer the arbitrage situation seems to have focused the share price around this level. Most of the commentary about the merger a is positive and so we are back in for a trade.
We also purchased Macy's in several accounts and had a profitable anchovy trade in Under Armour for the third time this year.
The Trumpster is keeping the markets cautious- which is not a bad thing. A rest at these levels will be a positive as long as President T confines his wrath and nonsense comments to tweeting and not action.
We now own: AT&T, CVS, Walgreens Boots, Cognizant Tech, Bristol; Myers, Intel, United Natural Foods, Hewlett Packard Enterprises, Domestic Oil ETF, Marathon Oil, Baker Hughes GE, Huntington Bank, 3D, Rite Aid, Macy's and Ascena Retail.
On final thought: Walgreens Boots was willing to pay a price of $180 per share for Rite Aid- taking into account the 1 for 20 reverse split. WBA tried for 3 years to pay $140 per share. When the Feds wouldn't allow, WBA bought slightly less than half of the Rite Aid stores for approximately $70 per share (reverse split adjusted). WBA has been in the drug store business for over 100 years. We think they know how to value drug store assets. That's why we repurchased shares in Rite Aid for $10 per share.
Goldman Sachs Upgrades Macy's, Risk-Reward 'Less Skewed to The Downside'
Goldman Sachs' Alexandra Walvis upgraded Macy's from Sell to Neutral with a price target lowered from $23 to $21. Macy's continues to face a challenging outlook given its exposure to the fast-changing retail environment and its portfolio of large and mall-based stores; Walvis wrote in the note. Management deserves some credit for initiatives to "reinvigorate" the in-store experience and attract new customers. This may prove to be insufficient as any incremental operating costs will likely offset any short-term traffic improvements. One of the company's initiatives to spur traffic growth is its off-price concept called Backstage. The analyst said this is likely to send a "confusing message" to customers and vendors related to its value proposition. Macy's is likely to continue seeing traffic shift from offline to online, which drives deleverage of its existing store base and labor force.
Macy's multiple headwinds are "increasingly well-understood" by investors, but Walvis said any new "good news" would be seen favorably.
Hewlett Packard Enterprise to buy supercomputer maker Cray in $1.30 billion deal
Abby's 19th Birthday 2019
The 'Village Idiot' is happy with his trade war and the markets are in state of confusion. Our take is that the current imbroglio is a result of the Trumpster's need to control the daily narrative. Happily, it is only a trade war and not a real war- although the Mustache Guy and the portly West Point Grad (has seen no combat), who is Secretary of State, seem determined to get the U.S. into one. Thus, the reason for the Oil issues we own. Of course, if a war (sorry, military action) does occur any pop in the oil issues will be ironic consolation. And we all will be in a real mess with the current leadership in place.
During the week repurchased 3D 20% lower than we sold last week (sorry Jim) when earnings disappointed. We also took a position in Cognizant Technologies (see below) which is down 30% in a month on a disappointing earnings report. It is a quality company. And we sold Apache for a plus/minus scratch when oil seemed to break support but then rallied to close above. We still have substantial oil exposure with Baker Hughes GE, Marathon Oil, and the Domestic Oil ETF (XOP).
An oversize position in AT&T (6.5% yield), Walgreens Boots, CVS, United Natural Foods, Hewlett Packard Enterprises, Rite Aid, and Ascena Retail are our other holdings.
Cognizant Technology Solutions Corporation, a professional services company, provides consulting and technology, and outsourcing services worldwide. The company operates through four segments: Financial Services; Healthcare; Products and Resources; and Communications, Media and Technology. It offers analytics and artificial intelligence, digital engineering, intelligent process automation, interactive, and hybrid cloud services and solutions; and application development, systems integration, application testing and maintenance, infrastructure, and business process services. The company also develops, licenses, implements, and supports proprietary and third-party software products and platforms for the healthcare industry. In addition, it offers revenue cycle management solutions to the healthcare industry; business advisory and data analytics services; and salesforce services. Further, the company develops custom cloud-based software and platforms; and provides consulting services that enable companies to plan, implement, and optimize automated cloud-based business processes and technologies. It serves banking and insurance, healthcare and life sciences, retail and consumer goods, manufacturing and logistics, travel and hospitality, energy and utilities, communications and media, and technology industries. The company markets and sells its services through professional staff, senior management, and direct sales personnel. Cognizant Technology Solutions Corporation was founded in 1994 and is headquartered in Teaneck, New Jersey.
3 May 2019
Nonfarm payrolls increased a seasonally adjusted 263,000 in April, the Labor Department said Friday. The unemployment rate fell to 3.6% last month, the lowest level since December 1969. Average hourly wages for private-sector workers grew 3.2% from a year earlier, matching the prior month's increase.
During the week we took 10% gains in Ford and GE and Sprouts Farmers market when they each popped 10% on better than but not really impressive earnings and sales news. In conjunction with those sales we sold Bristol Myers and 3D (ahead of earnings next week-not in your account, Jim) as we are cautious about the fluff in the IPO market and the sell in May and go away mantra suggests a cash raise is in order.
We will look to reenter GE lower when its nemesis JP Morgan analyst Tusa restates his negative view in a few weeks after he spends time dissecting the quarterly report. Same goes of Ford as the euphoria of a positive report is replaced by the general aversion the big boys and girls have for auto stocks. – except the wonder car Tesla.
Oil is down 15% from its high a few weeks ago and with Venezuela in turmoil and the Middle East always a question mark we decided to take advantage of sell off.
When oil held at support on Thursday, we placed some of the raised cash in Apache Oil and Baker Hughes GE (positive earnings report) and added to the XOP and Marathon Oil (which reported good earnings but dropped in sympathy with all the oil stocks)
Small accounts have a bit a cash as we try to keep them fully invested and large accounts have a comfortable cash position plus a large position in AT&T and its 6.5% yield.
Ascena Retail popped 15% this week -although still a loss in all accounts when they announced:
Ascena Retail Group Inc. said Wednesday Chief Executive David Jaffe will retire effective immediately. Jaffe will remain on the board of directors, the parent company of Ann Taylor, Dress Barn and other brands said in a statement. Gary Muto, chief executive officer of Ascena Brands, has been named the company's chief executive. In the same statement, Ascena said Chief Operational Officer Brian Lynch is also leaving. https://finance.yahoo.com/m/4e9de594-5b8f-3d2b-bdbe-4cd0125f113b/ann-taylor-parent-ascena-ceo.html
Jaffe is a founder of the company. We don't know why he resigned but one thought is that ASNA has placed dressbarn- which was the first store started by Jaffe -up for sale. We do think that if the share price doesn't increase substantially- and soon- that some private equity fund is going to make and offer at a 100% higher price than current. Hope springs eternal!!
Marathon Oil's drilling machine delivers a Profit Gusher in Q1 https://finance.yahoo.com/news/marathon-oil-apos-drilling-machine-202700437.html
Baker Hughes (BHGE) Beats Q1 Earnings, Revenues in Line
CVS Health Stock Rises 5.4% on Strong First-Quarter Earnings
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