Thursday, December 18, 2008

Sears, AutoNation, & Savy Billionaires: Gates & Lampert

While many analyst and investors seem to be beating up on companies such as Sears Holdings(SHLD) and AutoNation(AN) investors Eddie Lampert and Bill Gates continue to buy shares. Why? The economy has not been this bad in at least one or maybe two generations. Sears is a retailer who seems to be out played by competitors WalMart(WMT), Target(TGT) and Best Buy(BBY). Then their is AutoNation that is caught up in the Big Three Auto Debacle of Ford(FD), General Motors(GM) and Chrysler. Why are these Billionaires pouring money into these companies? Do they see something that the majority does not see?

"Just recently UBS initiated coverage of the stock with a ‘’sell” rating Thursday, Sears needs to come up with a solution for its operating problems. Many of them involve the basics of retailing: growing comps, executing on merchandising, improving marketing. Without a strategic operating initiative, Sears won’t be able to distinguish itself from the competition in the crowded and stagnant retailing sector, and thus won’t be in a position to reverse a steep sales decline. Also short sellers have also taken an extremely bearish stance on the retailer, as more than 19 million SHLD shares have been sold short. This accumulation of bearish bets accounts for 17.6% of the company's total float, and is 8.5 times the stock's average daily trading volume. Should the equity continue its downtrend, these bears could add to their winning short positions, pushing SHLD even lower."

So what is it that is going on with these two companies? Basically Wall Street is saying these companies suck. In the case of Sears their saying that Sears has a flawed business model and that it is NO SPECIAL retailer. In the case of AutoNation, Wall Street is saying with all the negative press on the auto manufacturers we don't want this one either. Does any of this hold true? Maybe, at least in the short term it does. But for the shrewd business men that I think Gates and Lampert are the answer is a NO!

Is their something more going on here? Well in my humble opinion I think their is. In the case of Sears, yes it is a retailer that does not shine as bright as WalMart or Target, however as I have stated in earlier posts that it sits on alot of untapped Real Estate as well as BRANDED names- Kenmore, Craftsman, Diehard and LandsEnd. Most investors already recognize this and it is talked up in the media over and over. However, I think their is a bigger picture going on with these companies than meets the eye. WallStreet has ALWAYS been short term oriented, their job is to play salesman and to constantly make that commission dollar. While Lampert and Gates are making a bigger play which may take several years to pan out. Can the passive investor make money here? I think he/she can if they have patience and due their own research.

This is an interesting case to study because I think it is more than just a rich guy buying a stock and making 20 or 30%.

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The author suggest further research before investing.
Author is long SHLD

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