Lemley Yarling Management Co
309 W Johnson St
Madison, WI 53703
Comments on activity in client accounts
Memorial Day 2022
Mr. Market was full of surprises this week finally ending 6 weeks of lower closes with Thursday and Friday higher closes. Retail earnings were our major focus since we were waiting for the reaction to their reports to decide whether to reestablish positions. Earnings for our favorites were a mixed bag but the reaction to all was positive and so we repurchased all of our favorites. (The reaction to the news is more important than the news- sometimes.).
We have been doing more than usual trading in accounts the last few months trying to keep our heads above water and this week finally restored the plus results to accounts that we were seeking. With markets still lower on the year all our accounts are positive with most up 5% to 10%. The major market measures remain down: minus 12% S&P 500, 8% DJIA and the NASDAQ still off 22%.
We loaded up early in the week even buying some fancy stocks. Early in the week the talking heads were all doom and gloom and by Friday they had a smile on their faces in they seemed to hope that maybe, just maybe.
We maintain a cautious view and so on Thursday and Friday we took trading profits on various stocks to get cash levels back to comfortable levels. If we continue to realize profits, we may redeploy some cash into dividend paying issues in which we have small positions in some accounts like AT&T (5.2%) and Verizon (4.9%) and Energizer (3.8%). We have been trading those stocks this year for scratch plusses equal to their quarterly dividends but, as one of our clients suggested, we may hold them long enough to receive at least one dividend. We have established major holdings in Walgreens (4.4%) Cisco (3.2%), Citibank (3.8%) Intel (3.2%) and Walgreens (4%).
Our holdings in GM and Ford are hold/trades that we plan on maintaining for the duration. In the last year we owned GM at the $50 level; took losses; traded profitably several times off the $40 level and now at the $36-$38 level. We have been trading Ford for years. In 2020 and 2021 our trades were profitable but this year we have given most of those gains back. Eventually ….
We added fancy stock SNOW to accounts at the $125 level down from $400. Prior to the sell off many of the gurus were suggesting that it was a value at any price; so, we thought that $125 was a better ‘any price' than $400. And the same goes for Square (they process transactions for retailers) which the analysts loved at $280 and we bought at $88. These purchases are of course anchovies (for trading not eating). We took profits in fancy stocks Zoom and Roku and Pinterest this week as well as in QUALCOMM and QQQM. All have been and will remain rentals.
We are back in American Eagle, Container Store, Bed Bath, Gap, Abercrombie, Urban Outfitters, Macy's and Under Armour. All survived reporting second quarter earnings. The retailers' rally this week was probably caused as much by short covering as investor interest. Even with negative earnings reports for the specialty stores, the values at these levels are compelling. And Macy's had a stellar report, as did Nordstrom. We sold Nordstrom for a 20% three day profit as part of our cash creating enterprise. Our position in any one company is more moderate than in the past and that is a nod to the volatile markets and the unfettered license that short sellers and computers currently enjoy in knocking down any stock any day.
We did buy and keep fancy stocks Snap and Lyft. Last Monday SNAP sank 40% to a multi-year low of $14 because in a letter to employees on May 23, CEO Evan Spiegel said the company will likely miss the second-quarter revenue guidance it gave out a month ago. We owned Snap at this level ($14) several years ago but didn't hold (too nervous) and its share price in the fancy stocks' fancy prices' era circa 2021 eventually moved to $80. We doubt it will approach near that level for many years. But at $14 it is worth the risk. We plan to be more patient because SNAP has had more success in capturing the millennial and Gen Z audience, who are much more active on social media platforms.
And, we like Lyft for a trade only, because it is only domestic and only ride sharing. Lyft Inc. is slowing hiring, cutting budgets and taking other actions as its stock lost another 17% on Tuesday, reaching a 52-week closing low and hovering near its all-time low.
Lyft President John Zimmer informed employees about the moves Tuesday afternoon …
The ride-hailing company's stock has been on a roller-coaster ride since it reported first-quarter results in early May. Lyft shares sank nearly 30% the day after executives issued a lower-than-expected forecast for the second quarter and said they intended to continue to spend on driver incentives and marketing as they prepared to meet more demand.
Read more @ https://www.marketwatch.com/story/lyft-cutting-hiring-costs-as-its-stock-nears-all-time-low-11653432067?siteid=yhoof2
The good news for Lyft is that it has $2.2 billion in cash on its balance sheet. This cash cushion likely gives it a two-year runway to eventually generate positive cash flow, based on its current burn rate. With the stock down to a market cap of $7.8 billion, shares now trade at a price-to-sales ratio (P/S) of 2, or below the market average. Read more: https://www.fool.com/investing/2022/05/05/why-lyft-stock-tanked-this-week/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
And so, we ahead on to the summer season. It should be interesting.
20 May 2022
The teeter totter market continues as Mr. Market inflicts doses of reality and humility on market participants on an almost daily basis. The computer folks are taking full advantage of the removed uptick rule (https://en.wikipedia.org/wiki/Uptick_rule ) attacking any stock that fails to meet earnings expectations.
The 25% one day collapse of retailer Target, the love of all retail analysts and large investors until the earnings miss (caused by supply chain issues that weren't foreseen by the company or the analysts), and the in sympathy 15% collapse of Costco, another darling of the industry are symptoms of the rath that computer programs can inflict on individual stocks.
When Target crashed, we decided to eliminate our retail holdings with the exception of Macy's because most of them are reporting earnings in the next weeks. While they are now at fire sale prices, they may drop to going out of business prices if they disappoint on earnings. We've seen this show before and would rather be on the sidelines to shop the pieces. Even with Macy's, we reduced our position ahead of what looks like the inevitable.
We sold our small positions in BankAmerica and Wells Fargo for scratch and took profits in JP Morgan and Citi to invest the proceeds in KBWB, the major bank ETF. With this market we would rather own the group than try to pick a couple.
We continue to hold and suffer with Ford and GM. Both are at 5 times earnings and Ford yields close to 4% while we ride out the markets dislike.
We traded IBM and Disney for plus on Monday and repurchased lower at week's end. IBM yields 5% and actually reported good earnings this quarter and Disney is down 40% from its high. Our grandchildren are going there next week so we know it is still in business.
Cisco's price collapsed 20% on Thursday. We had purchased it last week down 30% from its high. Now we own it down 45% from is high. Intel remains under pressure but both stocks yield 3.5% and we are content owning these old timer tech stocks that do nothing but grow sales, pay dividends and sell at reasonable P/E multiples.
We also have been adding to Walgreen's Boots. If they would boot the Boot's a rally would ensue. At 10X with a 4.7% yield we also are content. We think the part of the down moves in INTC and WBA and partly with CSCO are because they are in the DJIA and so will suffer as computers bet against the markets.
We reentered Hewlett Enterprises (HPE) when it dropped 10% and Wednesday. Then, BankAmerica place a sell on it on Friday morning and we picked up more shares down another 10%. And so, it goes in this type of market. We have been trading HPE profitably for the past few years.
We traded out of AT&T for a plus and Verizon for a minus to get cash in accounts for future purchase of higher beta stocks.
We were positive for the year until today and we remain 20% better than the S&P 500 and 30% better than the NASDAQ, small but real comfort.
We have a good cash position in accounts to take advantage of further sell offs. The world is not ending, fear is obviously in the markets and greed is taking it on the chin.
These sell offs, corrections, collapses are always different but also the same. Gurus are berating the Fed for not raising rates as a reason for the markets decline.
Could it be that Greed may have had something to do with the fancy stocks rise to unsustainable levels; the analysts missing supply change problems for even the best companies; the failure to factor in unexpected events like Ukraine (oil spike) and the China lockdown? Months ago, talking head money managers defended buying and owning Facebook, Netflix, Nvidia etc. when they were selling 2 and 3 times higher than the present. Now they are cautious.
And buy side analysts and fancy fund managers loved Zoom and Shopify and Snow etc. These fancy stocks had nil earnings and were pricing in 20 years of growth at the lofty prices. Of course, many of those analysts and fund managers weren't- in 2000 and certainly not in 1991, 1987, 1982, and 1974. They may have read about them in market histories but now they are painfully living it- and it isn't fun as they try to explain to clients that a buy and hold strategy will eventually- eventually work out. In a what have you done for me lately world that explanation is difficult to deliver.
Keep the Faith, we are.
13 May 2022
At the end of this contentious week Friday the 13th was kind to Mr. Market with the NASDAQ up 3% and the S&P 500 and DJIA up 2%. That rally ended the down week on a positive note for folks. The cause for the selloff is varied but Bitcoin and its friends like Ethereum ad nauseum have been a major reason as Bitcoin dropped below $30,000 on Thursday. The collapse from $60000 last fall and $40000 this week created margin selling of Bitcoin but also major stocks like Apple and Microsoft that were held by the hedge funds who found themselves in wrong way trades and had to raise cash to meet those calls.
We were active. On Monday we thought a relief rally would begin Tuesday and so we loaded up on stocks. Unfortunately, stocks opened up 1% and more on Tuesday morning- which was a negative. After the pummeling the markets have suffered a down opening Tuesday morning would have been the perfect setup for a late day rally.
We sold the up rally and went to cash and decided to rethink our approach. This was occasioned by the fact that by Tuesday evening we had surrendered most of our gains for the year. With the NASDAQ down 25% and the S&P 500 down 15% we really couldn't complain.
We decided that the selloff in market leading stocks like Disney, JP Morgan, Cisco, Verizon and the QQQ behemoths that we should concentrate on large caps for the eventual rally. And so, we purchased Disney, the major bank stocks, and the QQQM which is the ETF that owns Apple, Google, Amazon etc. We also repurchased favorites Intel, Walgreens and GM. We made many of those purchases on Thursday when the NASDAQ touched down 30% from its 12 months high and the S&P 500 touched down 20% from its high. If there was going to be a rally, we thought it might come from these levels- even if it is going to turn down in the future. Our partner Don Yarling always said that crashes don't come off the top they usually occur after markets are down 15% and more.
The major measures were up and down all day Thursday finally closing a scratch lower. That action was a good set up for a rally on Friday. Because Friday's rally could have been short covering ahead of the weekend, we took some short profits and ended with a healthy cash position heading into next week.
We have been gingerly purchasing our retail package as the wash sale period expire and will wait to see what the reaction to earnings in the next few weeks does to this beaten down group.
It will continue to be interesting and happily most accounts are again up for the year.
Why folks listen to underwriters who are in it for the ‘spiff' is beyond our 50 years of wondering comprehension.
Goldman Sachs is exiting work on most SPACs because of liability concerns as regulators tighten guidelines, report says. Goldman Sachs is pulling out of work with most special acquisition purpose companies it took public, Bloomberg reported on Monday.
6 May 2022
As the TV mavens say, markets are fluctuating. After a wild week of days up and down 2% and more, the markets finished the week on Friday both down and up then down a bit and down for the wild week. Needless to say, there is a cacophony predicting- the imminent collapse of civilization -or the rosiest of outcomes -for the ills of the world. At the moment Fear rules with Greed relegated to the sidelines.
Our accounts were not immune to the rapid up and downs. We are more fully invested than usual because we view the present as an opportunity. Yes, the War in Ukraine, the Fed raising interest rates, the political turmoil et al are worrying events but the Nasdaq has corrected 25% and the S&P 500 15% from their recent highs. And many of the fancy stocks are down 50% and more from their highs although most of them are still overpriced.
Interestingly the same scenario played out when the dot com boom burst in March 2000 and those dot com stocks spent the next many years returning to reality or going bust- some doing both. We survived 2000 with positive returns and prospered in 2001 by concentrating on low p/e stocks with decent dividends and trading adroitly. Hopefully we are doing the same this year.
At week end we owned: Verizon, The major Bank ETF in tax free accounts, Truist Financial, Huntington Banks, Intel, Carpenter Steel, British Pete, Paramount CBS, Macy's and Ford. We continue to trade them for plus and minuses as well as AT&T, GM, Hewlett Packard Enterprises, Cleveland Cliffs and AMC Networks.
We are watching the markets with wonder from the land of milk and honey and navigating the market manipulations as best we can. Our accounts remain positive for the year.
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