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Lemley Yarling Management Co
309 W Johnson Street
Apt 544
Madison, WI 53703
Bud: 312-925-5248       Kathy: 630-323-8422

October 26, 2012

Model Portfolio Value As of 26 October 2012

$ 630,724

Comment on Model Portfolio activity

We will be traveling next week and so the next Friday post will be on November 9. An updated Model Portfolio will be posted.

GDP grew 2% in the third quarter. The economy is slowly recovering. It is good to remember that 92% are employed. And that the difference from relatively satisfactory employment numbers is only 2%.

With the GDP news we decide to raise equity exposure by buying a few more quality stocks. We repurchased Walgreen, GM warrants, and Cisco, all slightly below our sale price last month. We also added DuPont which dropped 15% in price this week on a disappointing earnings forecast.

Most accounts (except the smallest) remain 75% cash.

Happy Halloween

October 19, 2012

Model Portfolio Value As of 19 October 2012

$ 633,951

Comment on Model Portfolio activity

Today is the 25th anniversary of the 1987 Crash.

We continue to expect no significant movement in the markets until the election.

This week we decided to repurchase Abercrombie, Juniper, and Intel 20%, 10% and 5% lower respectively from where we sold last month. We also bought Aéropostale (off 5% from when we sold and 40 % from its yearly high in August) and Nvdia down 15% from our September sale price.

All the stocks we bought are keepers as well as good trading situations.

Abercrombie ran up to $38 from this $32 level last month (and has since returned) when they announced that they had hired Goldman Sachs to consider strategic alternatives. ANF is the perfect stock for a leveraged buyout and even if that doesn’t occur; it is cheap in relation to all the other teen retailers. We have room to add more at lower prices.

Juniper is also the subject of buyout rumors. It is cheap on its merits and we want to own it anyway. Interestingly Sprint which is going to be partially acquired by Softbank, a Japanese company, doubled in value in the last month before the announcement. Insider trading of takeovers by foreign companies remains unchallenged by authorities.

We also repurchased Intel lower than our last sale. It yields 4% and remains the major player in the chips market.

Aéropostale is cheap and an analyst upgrade was the reason it was one of the few stocks up on Friday: From the Motley Fool http://finance.yahoo.com/news/wednesdays-top-upgrades-downgrades-173113123.html

Standpoint Research suggests you look no further than retail, and clothier Aéropostale in particular. "Aéropostale shares have been washed out," says the analyst, "now down by more than 3,000 bps versus the S&P since our February downgrade." As a result, "bad news is already more than priced in [and] we are betting on a reversion to the mean and that this represents a bottom."

Could Standpoint be right? Like Qualcomm, Aéropostale sells for a premium P/E ratio north of 17, but Aero's growth rate isn't even as robust as what Wall Street expects Qualcomm to produce. On average, analysts think the best Aéropostale can manage is about 12% long-term earnings growth over the next five years.

The good news here is that unlike Qualcomm, Aéropostale is generating a whole lot more free cash flow than its GAAP numbers suggest. Over the past year, free cash flow at the firm amounted to $95 million, or half-again what Aéropostale claimed as "net income." At an enterprise value of less than 10, and with 12% growth in the offing, Standpoint does indeed appear to have spotted a bargain.

Nvdia has negative analyst news this week and that is the reason we bought after it dropped 10% in two days. The news was:


 One week from the introduction of the “RT” version of Microsoft‘s (MSFT) “Surface” tabletcomputer, which runs on an Nvidia (NVDA) “Tegra” microprocessor, FBR Capital’s Craig Berger cut his rating to Market Perform from Outperform on Nvidia stock and cut his price target to $14 from $17.50, “given ongoing demand weakness in PCs, smartphone/tablet cannibalization impacts, and a lack of meaningful catalysts until next year.”

Although Nvidia is “the most attractive PC chip stock” given design wins in the Surface, not to mention Google‘s (GOOG) “Nexus 7” tablet, and a myriad of other devices, nevertheless there is still the risk that its sales of discrete “graphics processing unit,” or GPU, sales could be hit by protracted slowdown in PC sales ahead of actual uptake of Windows 8:

For 3Q12 or 4Q12, NVIDIA’s revenues could see a meaningful decline in at least one quarter with macro demand weakness, a Win8 production/consumption air pocket, and ongoing mobile cannibalization impacts.

Among relevant PC stats, he cites:

Checks with the top six notebook ODMs show 3Q12 notebook builds grew only 1% sequentially, consistent with our prior check, which at that point was the fourth negative revision since the quarter began, and worse than our initial build estimate of +8% sequential unit growth.

Nvidia shares today are down 52 cents, or 4%, at $12.34.


Update: RBC Capital’s Doug Freedman, reiterating a Sector Perform rating on Nvidia shares, shares some similar concerns.


October 12, 2012

Model Portfolio Value As of 12 October 2012

$ 635,066

Comment on Model Portfolio activity

We took no action this week. Our guess is that the markets meander until Election Day unless polls move more strongly in Romney’s direction. If Obama wins the S&P 500 will move lower to 1300 (now at 1430). If Romney wins S&P 500 moves up to 1550. Given our usual buying of out of favor issues we probably will be mostly on the sidelines till mid-December.

Katie Biking Border 2 Border 2012


October 5, 2012

Model Portfolio Value As of 5 October 2012

$ 635,066

Comment on Model Portfolio activity

There was no activity. Unemployment rate reported at 7.8%, the lowest since early 2009. Romney wins debate.

Our thought process on the market action goes something like this. With the favorable employment report this morning- even though Jack Welch, former GE CEO and his Neanderthal  friends are suggesting collusion- the Pooh-Bahs on Wall street who want a Romney victory have to be a bit conflicted. They don’t want the markets to be making new highs in the weeks before the election and we do think they have the power to prevent that. Call us conspiracy theorists but …………..






















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