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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

Comments on activity in client accounts

30 September 2016

When oil prices jumped during the week we sold our oil producing issues (MRO, XOP, and COP –which we has just purchased) for profits as we continued our intention of trading the shares on oil price movement. We also repurchased Marathon Petroleum which tends to move inversely to oil prices since it is basically a refiner with no production.

Midday Thursday rumors about hedge funds abandoning Deutsche Bank led to a 300 point drop in the DJIA.

Deutsche Bank's U.S.-listed shares DB, -6.54% tumbled Thursday after a news report said some hedge funds that clear derivatives through the Frankfurt-based firm had withdrawn some excess cash and positions. While the vast majority of the bank's more than 200 derivatives-clearing clients have made no changes, around 10 hedge funds moved a portion of their listed derivatives holdings to other firms this week, Bloomberg reported, citing an internal document. A Deutsche Bank spokesman told Bloomberg that the lender is confident that a "vast majority" of its clients "have a full understanding of our stable financial position, the current macroeconomic environment, the litigation process in the U.S. and the progress we are making with our strategy." Deutsche Bank shares were down 5.7% in New York. Shares of the lender have dropped more than 50% this year amid concerns over the lender's thin capital


Friday Deutsche Bank rallied when rumors of a $5 billion settlement surfaced. And so the big boys and girls had fun with the volatility while the rest of us just scratched our heads in wonder.

Today marks the end of the third quarter and the beginning of more favorable historical market action. We shall see.


23 September 2016

We purchased Ascena Retail (Justice, Ann Taylor, Lane Bryant) when it dropped 40% on Monday to $5.80. We have traded profitably this year and are comfortable with a small position at this level. We added to Wells Fargo which is in the doghouse for cheating customers (what else is new?), but after the election the brouhaha will die down and Wells will fork over $100 to $500 million (which is small change these days to large banks- and which the cheated customers will see little of) and will eventually return to its position as most valuable U.S. bank. We also added shares of the Domestic oil ETF (XOP) on Friday.

Warren Buffet says he is not commenting on Well Fargo until after the election. But he may also not be commenting because he is currently acquiring more shares. (OUR THEORY)


One of billionaire investor Warren Buffett's most memorable bits of investing advice is to be greedy when others are fearful.

Wells Fargo stock's 20% drop this year, as large U.S. banks get pummeled by low interest rates and volatility related to lackluster oil prices, slowing Chinese growth and the United Kingdom's decision to leave the European Union, gives the Berkshire Hathaway CEO the chance to follow his own suggestion.

Buffett hasn't said whether he will, but Berkshire's request for Federal Reserve approval to expand its stake in the San Francisco-bank beyond 10%, a threshold for increased government scrutiny, opens the possibility. Wells Fargo is already one of Buffett's biggest equity holdings and thanks to the bank's buybacks, his stake grew to 10% earlier this year, according to a March regulatory filing.

The requirement that investors seek Federal Reserve permission to hold more than 10% of a financial institution is a provision of the Change in Bank Control Act, which is used by regulators to monitor activity between banks and non-financial institutions, and prevent acquisitions that might be harmful to customers or the general public.

"Berkshire is seeking permission to retain its current ownership position in Wells Fargo and to acquire additional shares of common stock of Wells Fargo," the Omaha, Neb.-based company said in an application to the Fed. "Berkshire does not have any specific transaction or dollar value in mind."



16 September 2016

When markets rallied Monday after the previous down Friday, we used the opportunity to reduce positions in the issues we own. We realized over the week end that the positions were too large and that we were trying to prove ourselves smarter than Mr. Market by increasing positons as share prices dropped - even though we think markets are going lower over the short term. As our good friend and partner Don Yarling used to say, "No one is smarter than Mr. Market."

We used the continued weakness during the week to add to Marathon Oil, and repurchase shares of XOP and Juniper. Finally the bad news for Wells Fargo offered an opportunity to establish a position.

And so we ended the week with accounts invested about the same as the previous week but with a better distribution of equity investments.

Markets remain mixed and uncertain and so do we. Now if it would just stop raining......


The U.S. Census Bureau announced today that real median household income increased by 5.2 percent between 2014 and 2015 while the official poverty rate decreased 1.2 percentage points. At the same time, the percentage of people without health insurance coverage decreased.

Median household income in the United States in 2015 was $56,516, an increase in real terms of 5.2 percent from the 2014 median income of $53,718. This is the first annual increase in median household income since 2007, the year before the most recent recession.

The nation's official poverty rate in 2015 was 13.5 percent, with 43.1 million people in poverty, 3.5 million fewer than in 2014. The 1.2 percentage point decrease in the poverty rate from 2014 to 2015 represents the largest annual percentage point drop in poverty since 1999.

The percentage of people without health insurance coverage for the entire 2015 calendar year was 9.1 percent, down from 10.4 percent in 2014. The number of people without health insurance declined to 29.0 million from 33.0 million over the period.


9 September 2016

Markets closed lower on the week with Friday being a 1% down day. It is September so the drop isn't much of a surprise. We switched Sketchers to more Viacom and added to our Sprouts position when it dropped 15% on less than earnings and forecast. SFM is at its all-time low and is out of favor as are most of the food store stocks.

Hain and First Solar also continue to erode. We'd like to get back into XOP if the opportunity presents. That is really the only other issue we are watching for reentry at present.

Accounts have given back some of their gains for the year but our large cash position has mitigated the damage and we remain comfortable with our holdings.


2 September 2016

The Friday employment report was less than but the three month average is over 200,000.

We added Abercrombie to accounts this week when it dropped 20% on lousy numbers. We have been trading the stock for years and at our purchase level of $17 we are comfortable with the risk/reward.

September is usually a dicey month and so we are maintaining a large cash position in most accounts.

We currently own: Hain, First Solar, Marathon Oil, Sprouts Food, Viacom, Skechers, Abercrombie and Crocs.

Enjoy the last weekend of summer.


Initial jobless claims came in at 263,000 for the week according to the Labor Department.

This is better than economists' expectation of 265,000.

The number maintains the now 78 straight week streak of claims coming in under 300,000. This is the longest such streak since 1970


First Solar (FSLR) Stock Rating Initiated at Barclays


Barclays initiates coverage of First Solar (FSLR) with an 'overweight' rating and a $71 price target.

Sep 1, 2015 9:24 AM EDT

NEW YORK (TheStreet) -- Barclays initiated coverage of First Solar with an "overweight" rating on Tuesday.

Shares of First Solar were falling 1.8% to $47 in pre-market trading.

The analyst firm set a price target of $71 for the solar module maker. Barclays set its 2015 and 2016 EPS estimates for First Solar at $3.49 and $3.77 a share, respectively.

Barclays analysts Jon Windham and Daniel Ford said First Solar has a strong balance sheet and can show robust international growth.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks with serious upside potential in the next 12-months.

"We view First Solar as attractive in the current market volatility given a strong $15/sh net cash position to internally fund international growth," the analysts wrote. "In addition, as the dominant thin-film solar developer, First Solar's margins should remain better than those of the more commoditized silicon module providers."

TheStreet Ratings team rates FIRST SOLAR INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate FIRST SOLAR INC (FSLR) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and increase in net income. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Argus Downgrades First Solar On Price Competition Concerns


Jim Swanson, Benzinga Staff Writer

August 31, 2016 10:19am

Argus' Stephen Biggar expressed concern regarding First Solar, Inc. declining project backlog, as well as the impact of strong price competition.

Biggar downgraded the rating on the company from Buy to Hold.

The analyst expects the company's EPS to be hurt from 2017 to 2019 due to the extension of tax credits for solar projects.

"While customers have rushed to complete projects ahead of the original deadline in 2016, they will not face the same urgency in 2017–2018," Biggar mentioned, elaborating that the incentives had now been extended through 2019.This has led to a decline in backlog, while resulting in lower earnings visibility.

"We continue to view FSLR as the best-positioned company in the solar industry based on three factors: its ability to remain profitable even as peers have been hurt by oversupplied markets and a lack of pricing power; its investment in cadmium telluride technology, which should provide a cost advantage relative to more commoditized technologies like polysilicon; and its positive cash flow and solid balance sheet," Biggar stated.

First Solar is expected to benefit over time from the stricter environmental regulations for fossil fuel based power, as well as increased public and government support for clean energy.

The company intends to launch its Series 5 module in 2017, while starting pilot plan production for Series 6 in 2018.

"In preparation for these new modules, management is focusing its capital spending on the development of new technologies rather than on the addition of manufacturing capacity," the analyst said.

Biggar believes there are signs that First Solar's technological investments are bearing fruit, since they have helped the company reduce solar generation cost on a per-watt basis and expand its opportunities in utility scale projects.

Date Firm Action From To
Aug 2016 Argus Research Downgrades Buy Hold
Aug 2016 Goldman Sachs Maintains Buy
Aug 2016 Barclays Maintains Overweight


Have Analysts Cut Abercrombie & Fitch Ratings Too Much?


By Chris Lange August 31, 2016 12:45 pm EDT

Abercrombie & Fitch Co. (NYSE: ANF) reported second-quarter fiscal 2016 results on Tuesday. Unfortunately this retailer posted another net loss and investors were not pleased, sending the stock down about 20%. Analysts poured into the stock as well, quickly adjusting their ratings after this devastating quarter.

24/7 Wall St. has included highlights from the earnings report, as well as what analysts are saying after the fact.

The specialty retailer posted an adjusted diluted loss per share of $0.25 on net sales of $783.16 million. In the same period a year ago, the company reported adjusted earnings per share (EPS) of $0.12 and revenues of $817.76 million. Second-quarter results also compare to the Thomson Reuters consensus estimates for a loss per share of $0.02 and $787.71 million in revenues.

Same-store sales for the quarter in both the United States and internationally fell 4% year over year. Companywide, same-store sales were down 4%. Direct-to-consumer and omnichannel sales accounted for 23% of total quarterly sales. Gross margin slipped from 62.3% year over year to 60.9%, primarily due to higher average unit costs, partially offset by lower average unit retails.

In its outlook for the 2016 fiscal year, Abercrombie said it expects same-store sales to "remain challenging through the second half of the year, with a disproportionate effect from flagship and tourist locations." At the end of the first quarter, the company said it expected same-store sales to "remain challenging in the second quarter, but to improve in the second half of the year." That now appears to be out the window.

Abercrombie did not provide an EPS or revenue forecast, but analysts are looking for 2016 EPS of $0.81 on revenues of $3.44 billion. Consensus estimates also call for third-quarter EPS of $0.43 and net sales of $862.38 million.

Merrill Lynch reiterated an Underperform rating and cut its price objective to $16 from $17. The company gave its investment rationale as follows:

We expect Abercrombie's margins to continue to move lower as currency; weak demand and a narrower pricing spread weigh on the profitable European division. The US business is showing signs of stabilization, with store closures and cost cuts helping to offset some margin pressure. However, headwinds remain for domestic teen retailers, including heightened competition and a weak fashion cycle.

S&P Capital IQ maintained its Hold rating with a $22 price target but reduced its fiscal 2017 and fiscal 2018 EPS estimates by $0.43 and $0.27, to $0.75 and $1.16, respectively.

A few other analysts weighed in on Abercrombie & Fitch as well:

BMO has a Market Perform rating and cut its target price to $19.

Citigroup cut the price target to $20 from $23.

FBR lowered its price target to $19 from $22.

KeyBanc has an Overweight rating and cut its price target to $25 from $27.

RBC has a Sector Perform rating and cut its price target to $20 from $23.

Stifel cut its price target to a Hold rating from Buy.

SunTrust Robinson has a Buy rating and lowered its price target to $23 from $30.

UBS has a Neutral rating and cut its price target to $18 from $22.

Shares of Abercrombie & Fitch were last trading down 2% at $17.73, with a consensus analyst price target of $22.57 and a 52-week trading range of $16.49 to $32.83.



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