Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
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30 October 2020
Markets dropped 10% this week. We used our cash position to repurchase stocks we sold 10% to 20% higher in the last few weeks before the pullback. Except for those clients who requested that we maintain a large cash position we committed most of our funds. It is reasonable to expect a pullback ahead of the election, what with the uncertainty of who will win and with the scare memes that the cable stations and websites are suggesting. History informs that contretemps and noise have been part of the election process since the founding.
All three scenarios- a Biden win with a Democratic Senate, a Trump win, or a Biden win with a Republican Senate- have positive implications for the markets, post-election.
We own: IBM 9 X earnings 5.8% yield; Intel 9X-3%; Cisco 11X-4%; KBWB(major banks) 9X- 3.6%; Western Digital 11X-0%; Canadian Solar 12X- 0%; Walgreen Boots 7X- 5.5%: AT&T 8X- 7.7%; AMC Networks 3X-0%; NCR 11X-0%, Sprouts 9X-0%; United Natural Foods 4X-0%; Bed Bath 20X-0%; Abercrombie 20X-0%; American Eagle 15X- 0%; Ford 15X-0%; GE 20X-0%Mastec 10X-0%; Koppers 6X-0%; Terex loss-0%: Carpenter Steel loss-0%; DON (Wisdom Tree Small Cap) and XLK (SPDR Tech- Apple and Microsoft).
IBM, Intel, Western Digital, Walgreens Boots, AT&T, NCR, Sprouts, United Natural Foods, Bed Bath, Ford, GE, Mastec and Koppers all announced better than earnings in this reporting period.
4 days and it will all be over- Please!
23 October 2020
Unemployment claims dropped to the 750,000 level which is heartening and discouraging at the same time. Markets were lower this week as they mark time until after the election.
Last week we commented that we were fully invested and that elicited more than a few comments from clients that they would be more comfortable with more cash until the election issues are settled. Since we don't expect a huge rally soon, we have listened and raised cash in accounts. Also, most accounts are flat or positive this year after being down over 20%.
We now hold: IBM (bought after it dropped 15% this week on good earnings but guru disappointment); Intel (sold at $54 on Tuesday and repurchased at $48 on Friday after it dropped on good earnings but again guru disappointment); Sprouts Markets which we expect to pop next week on positive earnings; United Natural Food which we traded profitably and repurchased this week; Carpenter Steel, Abercrombie, American Eagle, Rite Aid and Ford and GE (which we sold for a profit and then repurchased higher as they continued to climb). Finally, we reduced our oil exposure to Schlumberger and Apache Oil (the gurus hate oil).
10 days to go!!
16 October 2020
Unemployment claims rose last week. Markets vacillated. We remain fully invested. If Biden wins there may be a knee jerk pullback but if Dems get the senate trillion-dollar infrastructure hopes will rally the markets. If Dems don't take the senate, traders will be pleased that taxes won't be raised. If Trump wins……
During the week we repurchased AMCX 10% lower than we sold last month. We sold WFC at another loss and removed it from our screens so we aren't tempted. With the funds we repurchased Bed Bath which we have traded profitably this year as BBBY announced the sale of two divisions for $250 million. This news was greeted positively by traders. We sold American Eagle and The Gap to maintain a reasonable exposure to Retail. We added to Abercrombie, Apache, Marathon Petroleum and Parsley energy. We also repurchased Dentsply as a play on dentist offices reopening and Canadian Solar at $37 which we sold at $41 last week. We repurchased United Natural Foods- another stock we have been profitably trading; and added to Lyft and Hexcel.
The election can't come soon enough.
Gurus are worried that corporate earnings are going to be affected by Biden's tax increases. Since many companies' earnings are suffering this year because of Covid, any earnings gain next year- even if they are affected by increased taxes- will be positive. Investors are paying 20 times for depressed earnings and they will pay 20 times for increased earnings that are greater than this year even with a higher tax rate.
Robinhood pretty good at getting hacked; not so good at getting back to hacking victims.
Even Warren Buffet makes mistakes.
A lawsuit claims Jones Day helped trick Warren Buffett's organization into buying a German company for five times what it was worth.
SLB at a 40-year low:
In 1980 Oil was at $35 per barrel and SLB had revenues of $3.5 billion. SLB was priced at $15 per share. In 2020 SLB is priced at $15 per share with depressed revenues of $20 billion. Oil is at $40 per barrel. Eventually oil consumption will fall as electric vehicles take over. But there are 1 billion combustion engine vehicles in use today. This year has been a disaster for oil companies but the survivors will recover. We are at mutual fund/ETF year end (October 31) so oil issues will remain under pressure int November.
Schlumberger posted a third-quarter loss of $82 million, or 6 cents a share, vs. a loss of $11.3 billion, or $8.22 a share, in the comparable year-earlier period. Excluding charges and credits, the company earned 16 cents a share, down from 43 cents a share a year ago though better than analysts' estimates of 13 cents a share.
Revenue came in at $5.3 billion, down 38% from $8.54 billion a year ago and below analysts' forecasts of $5.4 billion. Cash flow from operations was $479 million, while free cash flow was $226 million.
9 October 2020
Markets have been on steroids this week as the DJIA and S&P 500 500 were higher all 5 days.
We gave up on our gambling stocks at a too big loss and realized nice trading profits in our solar equities. The reason we exited those issues is that we saw a chart that showed that Robinhood, the no commission brokerage, now has 15 million accounts while Charles Schwab only has 14 million. But and it is a big but, Robinhood has an average account size of $5000- yes only $5000- while Schwab's average is a more understandable $250,000. What Robinhood's account size means is that most of the trading in its accounts is probably options. Option trading is what's moving the wonder stocks each way including DraftKings and Penn National. They have become one-way streets both up and unfortunately for us down. We were able to trade the solar stocks for profits but the losses were greater on the gambling and since our value issues are doing well, we have stopped gambling on the speculative issues while continuing to profitably traded some of our usual suspects – GE, United Natural Foods, Hexcel, Excel, Apple, Microsoft and Tapestry (Coach).
See last week's post for what we own and have been trading. We did add Exxon, Marathon Petroleum, Gilead and MasTec (See description below) this week while selling AT&T and IBM.
3 weeks to go!
"It was all very careless and confused. They were careless people, Tom and Daisy - they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together and let other people clean up the mess they had made. . ." The Great Gatsby
Wealth During the Pandemic
The wide economic gulf between the "rich" and the "poor" is no state secret. But new data from the Federal Reserve paints a particularly stark picture:
The top 1% control $34.2 trillion of collective wealth - 16 times more than the nation's "bottom" 50%. As highlighted by the Post, the top 59 wealthiest people in America have a combined fortune of $2.09 trillion. The "bottom" 50%, representing roughly 165 million people, controls $2.08 trillion.
MasTec, Inc., an infrastructure construction company, provides engineering, building, installation, maintenance, and upgrade services for communications, energy, utility, and other infrastructure primarily in the United States and Canada. It operates through five segments: Communications, Oil and Gas, Electrical Transmission, Power Generation and Industrial, and Other. The company builds underground and overhead distribution systems, including trenches, conduits, cell towers, cable, and power lines, which provide wireless and wireline/fiber communications; natural gas, crude oil, and refined product transport pipelines; electrical power generation, transmission, and distribution systems; power generation infrastructure, such as renewable energy; heavy industrial plants… Read more https://finance.yahoo.com/quote/MTZ/profile?p=MTZ
2 October 2020
Well, the week wasn't boring.
If Trump wins the markets will rally. If Biden wins and Dems get the Senate the markets will sell off and then rally when it becomes clear that a trillion-dollar infrastructure package is in the works plus further aid for state and local governments.
IBM, Intel, Cisco, Western Digital (have had a few nice trades in last few week), Large Bank ETF (KBWB), Financial ETF (XLK), Wells Fargo, Hexcel, GM, AT&T, Viacom, Albertson's grocery, Sprouts Food Markets, United Natural Foods (bought after dropped 25% after better than earnings), Carpenter Steel, U.S. Steel, GE, Ford, Apple, Tech ETF (XLK), DraftKings and Penn National (online gambling), Boyd Gambling, First Solar, Canadian Solar, Abercrombie, American Eagle, Tapestry (Coach and Kate Spade) and Rite Aid (bought after it strangely dropped 30% even after better than earnings). We sold Bed Bath for a 30% two-week gain.
As the song lyrics go, "The times they are a changin". https://www.youtube.com/watch?reload=9&v=90WD_ats6eE
Nice work if you can get it.
The Kushner family real estate company, partly owned by White House senior adviser Jared Kushner, was granted $850 million in government-backed loans with "unusually good terms," New York Public Radio and ProPublica reported.
The loans backed by the government-sponsored Federal Home Loan Mortgage Corp. — known as Freddie Mac — granted last year to Kushner Companies made it possible for the business to purchase thousands of apartments in Maryland and Virginia in its largest deal in a decade, according to the joint investigation by WNYC and ProPublica.
Jared Kushner gave up running the company after father-in-law President Donald Trump gave him a job as White House adviser. But he remains a key stakeholder in the company, and has made millions of dollars from the business, including from operations linked to the Freddie Mac-backed deals, according to his financial disclosure filings.
Sixteen of the loans were first reported last year by Bloomberg, but the details of the Kushner Companies' favorable terms were not revealed until now.
A total of 18 loans the company obtained with Freddie Mac last year allowed more borrowing and lower monthly payments than was typical for similar loans, the investigation found.
The arrangement allows the company to pay only interest for 10 years, postponing payments on the principal for a decade, according to the articles. That increases the risk to investors who buy bonds that include the Kushner mortgages, and to Freddie Mac and taxpayers in the event of a default. Only 6% of the 3,600 loans backed by the agency last year were interest-only for a decade or more, the WNYC and ProPublica investigation found.
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