Lampert's Sears Holdings Unlocking Some Value

It Looks like Eddie Lampert is unlocking some of Sears Holdings ($SHLD) value. What value? For most onlookers Sears is nothing but a washed up retailer, playing second fiddle to the likes of WalMart ($WMT) and Target ($TGT). But too the value investor their is a different story. For those not familiar with Eddie Lampert, he is the acting CEO of Sears Holdings and a Hedge Fund manager with over 20 years of successful investing experience. When Lampert took hold of Sears via Kmart and merged the two earlier this decade most hailed Lampert as the stock climbed to new heights. But over the last few years in one of the worst economy's since the Great Depression most have grown impatient wondering when and what he will do.

The Value that I was referring to is the DieHard battery brand which is owned by Sears and was exclusively sold only through Sears outlets. However now Sears will start selling DieHard through other retailing outlets (read here). This gives Sears another channel which could equate to more dollars down the line. Remember that Sears holds other brands that could later be sold through other retailers. Brands such as Craftsman tools, Kenmore appliance, and Lands End.

Relevant Articles:

SEARS NOT JUST YOUR AVERAGE RETAILER!?$$$

Billionaire Eddie Lamperts Sears Has More Ideas In-store!

Slicing up Eddie Lamperts Pie!?$$$

Author long SHLD

Value Investor Mohnish Pabrai - The Dhandho Investor

For those of you that are not familiar with Mohnish Pabrai, he is a devout disciple on the teachings by Warren Buffett and Ben Graham. Mohnish runs a fund identical to Warren Buffett's original Buffett Partnership which was the predecessor of Berkshire Hathaway. Pabrai wrote a book about 2 years ago titled the Dhandho Investor. The word Dhandho which is pronounced dhun-doe is a Gujarati(a state in India) word. Dhan comes from the Sanskrit root word Dhana meaning wealth. Dhana-dho, literally translated, means "endeavors to create wealth". Pabrai is a focus investor usually holding about 12-18 stocks in his portfolio. Pabrai likes to put no more than about 5% to 10% in each stock. Currently Pabrai holds 17 stocks in his portfolio with about 235 million under management. Ternium $TX, Harvest Natural $HNR, Teck Cominico CL B shares, Berkshire Hathaway $BRKB and Fairfax Financial Holdings $FFH are his 5 top holdings. The current 13F filings show that Pabrai bought a large position in Brookfield Properties $BPO while closing out his position in Sears Holdings $SHLD . For those of you that have not read the Dhandho Investor, you should, it is simple to understand and makes a lot of sense.

Posted via email from stockmanmarc's posterous

A Glimpse of a Stock Operator & A Value Investor: Jesse Livermore

Many people in the investment arena have probably heard of Jesse Livermore, The Great Legendary Stock Operator. Most stock traders view "Reminiscences of a Stock Operator" as a must read for anyone that wants to learn about trading stocks. However I think anyone interested in the stock market could learn a few things or more from Mr. Livermore. While always considered a stock trader, Mr. Livermore had certain investment techniques that are similar to some well known value investors of today. Which is concentrating ones bet on a few stocks at a time. The well known Warren Buffet operated much like this in his early years of investing. Another well known investment manager by the name of Eddie Lampert limits his bets as well. This shows by his large stakes in Sears Holding $SHLD, AutoNation $AN, and AutoZone $AZO which make up the bulk of ESL Investments, Lampert's investment vehicle.

Below are some quotes from Mr. Livermore:

"Cash was, is, and always will be - king. Always have cash in reserve. Cash is the ammunition in your gun. My biggest mistake was not in following this rule more often. Time is not money because there may be times when your money should be inactive... Often money that is just sitting can be later moved into the right situation and make a fortune. Patience-Patience-Patience. Patience was the key to success - Don't be in a hurry." - Jesse Livermore. How To Trade In Stocks, 1940.

From the words of Mr Livermore you can see, that he shares something with other great investors and that is patience. Warren Buffett has often said that his ideal holding period is forever. This is a bit of an exaggeration, as we know Buffett has been known to cut ties fairly quick if he has miss read the tea leaves.

"I have suggested to people who are interested in the stock market that they carry around a small notebook, keep notes on interesting general market information, and perhaps develop their own stock market trading strategy. I always suggest that the first thing they write down in their little notebooks should be: 'Beware of inside information- all inside information!' "

Livermore along with being patient made sure he did his homework and read the cards right before plunging in, also a trait that some of the other Greats have shared.

Later in his life Livermore was asked an important question. No it was not by any other notable stock traders but by his son's. They wondered why their Dad was so good at this game while others seemed to mostly loose at it. His answer:

"The stock market must be studied, not casually, but deeply, and thoroughly. It's my conclusion that most people pay more attention to the purchase of an appliance for their house, or when buying a car, than they do to the purchase of stocks. The stock market , with its allure of easy money and fast action, induces people into foolishness and the careless handling of their hard earned money, like no other entity."

This is as true today as it ever was. What ever is in vogue today is what the crowd does. However, the investor that really wants to make money in the markets needs to develop his own strategy and adhere to this, the same as the great ones do.

Slicing up Eddie Lamperts Pie!?$$$

I thought this might be a good time for an up date on Sears Holdings $SHLD considering they just released earnings yesterday of $2.94 excl items vs. estimate of $2.68. While the economy sank deeper into a recession Sears held up fairly well. However many financial media pundits talk otherwise. To the ones that are new to this story let me catch you up. Mr. Edward Lampert who is the Chairman of Sears Holdings runs a Hedge Fund- ESL Investments. The Hedge Fund or ESL has 16 stocks in its portfolio totaling over 7 billion with SHLD and AutoZone $AZO making up the lions share at 75%. Lampert bought into Kmart in 2003 and Sears in 2005 and merged the two companies. The company had success coming out of the box with the stock fetching as much as $195 a share. This was due to many investors thinking Lampert would sell off part of its large real estate holdings. This has not occurred and we all know what the economy has done over the last year and a half- tanked. Many investors jumped aboard this stock solely due to its real estate, that's fine but since the stock has gone south many bailed and seem to think Sears better days are behind them. As a retailer this may be true but as a potential Investment Holding company I think otherwise. Many large profiled investment companies have been in and (out) of this stock. Two of the larger players that have their funds money invested are the Fairholme Fund run by Bruce Berkowitz and the Third Avenue Fund fund run by the veteran Marty Whitman. With the economy in tough times this company along with the majority of others will take time to pay off or will it PAY off? Lampert states in his current news letter:

Sears will continue to evaluate opportunities based upon our expectations for returns and continue to experiment with a variety of options where the returns could justify higher levels of investment...

• Taking this approach a step further this month with plans to close its Joliet, Ill., Kmart store and transform it into MyGofer, a store where buyers can pick up their online orders. An estimated 80% of the facility will be dedicated to merchandise storage; 20% will be allotted for showroom space.
• The public launch of ServiceLive earlier this month is another example of how we are creating relationships with customers that empower them to manage their lives. ServiceLive.com is an online marketplace where homeowners and businesses can name their price for a wide variety of services, improvements and repairs.
  
• The company said Kmart, which has benefited from increased layaway sales to cost-conscious shoppers, increased its adjusted earnings before interest and taxes from the prior year.
• Reduced short-term borrowings on its $4 billion revolving credit line to $435 million as of January 31 from $1.9 billion at November 1, 2008.
• Plans to close 24 stores in addition to the eight already announced.
• Repurchased 2.9 million shares for $120 million and debt securities for $29 million during the fourth quarter
• Maintained strong balance sheet and liquidity position
• Cash balance of $1.3bil as of January 31st 2009 vs. $1.6bil February 2nd 2008
• Kmart began operating its own footwear business on January 1, 2009, which had previously been operated by a third party
  

Heres what Mr. Lampert had to say in a letter to shareholders

Relevent Articles

Sears Not Just Your Average Retailer STOCKMANMARC

Sears Is Holding Strong Todd Sullivan@ValuePlays

Sears Prunes Back To Conserve Cash Forbes

Billionaire Eddie Lamperts Sears Has More Ideas In-store!

I have written several articles over the past several months on Sears Holdings(SHLD) and the man at the helm Mr. Eddie Lampert. Sears as many of you already know is a large American retailer that has been a part of our landscape for over a century. Mr Lampert has been running the show their for the last few years. Shortly after Lampert took over running the company the stock price ran up like a rocket ship, he was hailed as a hero, but since the bad turn in the economy, he has been given a lot of flack. Many critics have said that Lampert and Sears are washed up and that WalMart(WMT) and Target(TGT) are the retailers with a future. I think not, Lampert is taking this opportunity to try new ideas .....

Does the Internet play a role? 

Will Eddie leverage his Real Estate holdings in Sears for new concepts?

Will he sell some of Sears other brand names through other distribution channels ? After all he is the biggest shareholder in AutoZone(AZO) and AutoNation(AN). 

Is Sears  a Berkshire Hathaway in the making?

Eddie Lampert Pulls A Coup d'etat Over Other Retailers!

It looks like Eddie and his

Sears Holding(SHLD) company are showing some adversity in front of other retailers and the economic down turn. Lampert has been criticised over the last year for NOT selling off real estate and NOT plowing gobs of cash back into its retail operations. It seems that the public and Wall Street just don't get it. While the ones that have followed his career path take a different view. Of course only time will tell if things will work out, Sears (SHLD) saw its shares rally as much as 23% Thursday as the owner of Sears and Kmart gave a surprisingly strong profit forecast. The rosier outlook follows Kmart's improved performance through the holidays . It seems while the industry leader WalMart(WMT) enjoyed a good year Sears continued to be sold off, however since its November low it has almost doubled from $26.80. while closing today near $50.00 per share.

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%.

related links:

http://stockmanmarc.blogspot.com/2008/10/sears-not-just-your-average-retailer.html

http://stockmanmarc.blogspot.com/2008/11/sears-holdings-esl-investments-mr-eddie.html

http://finance.yahoo.com/news/Gates-Lampert-keep-buying-apf-13871819.html

The author suggest further research before investing.

Author is long SHLD

Sears Holdings, ESL Investments & Mr. Eddie Lampert

This is a follow up on my previous article on Sears Holdings (see my post "Sears Not Just Your Average Retailer!?$$$"http://stockmanmarc.blogspot.com/2008/10/sears-not-just-your-average-retailer.html) which I covered just a few weeks ago. The stock has gone down another 20% since then which is probably in anticipation of earnings that are due out on Dec. 2nd, 2008. However the intrinsic value of the company still looks to be around $81.00 per share and this does not include the Craftsman, Kennmore, or DieHard brands which most Americans are familiar with. Due understand that the estimates in value are rough estimates but conservative ones at that. Since I last posted on Sears, they have since reinstated the layaway plan which use to be quite popular many years ago. It was always very popular around the holidays. For those of you not familiar with the layaway plan, you simply put down a small down payment and the retailer holds that item until the product is payed for.

Many people are strictly looking at this company as a pure retailer, and saying that they don't have a chance against WalMart(WMT) and Target(TGT). However Sears sits on a vast amount of real estate that could be sold off or converted into a different type of store, the possibilities are many. Plus they have cash on hand to redeploy or buy back shares that have been beaten down which further increases shareholder value. Furthermore their debt/equity ratio currently is .38 which is much lower than the competition. Also remember that Eddie Lampert is not only chairman of a retail giant but a chairman of ESL Investments who has a 20+ year track record.

This is an interesting stock and situation, which I will try to follow up on at a later date.

Please remember this is not a recommendation but a business to keep an eye on and do further research.

SEARS NOT JUST YOUR AVERAGE RETAILER!?$$$

Many people think of Sears(SHLD)as that old line retailer who had those big thick catalogues that came out every year that offered a zillion items inside its pages. Those days have been replaced by the internet + other big box retailers such as Walmart and Target. What many people including investors don't realize that underneath this stodgy retailer breathe a different animal. Sure Sears is still a retailer with stores everywhere. But it is not just any retailer. Sears is comprised of Sears, K-Mart and Sears Canada(70% owned subsidiary). Sears is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics , automotive repair and maintenance. Their main brands are Kennmore, Craftsman, and DieHard. They also have several different lines of apparel such as Lands' End, Jaclyn Smith and Joe Boxer, they also offer Apostrophe, Covington Brands and Martha Stewart Everyday products. Sears is the nations largest provider of home services, with more than 13 million service calls made annually. ESL Investments Inc a privately owned hedge fund run by famous value investor Eddie Lampert is the man running the show. Lampert has a 20 year track record of 20% annually. Besides being Sears Holdings largest shareholder he has sizable stakes in AutoZone(AZO), AutoNation(AN), Home Depot(HD), and Citigroup(C). Sears is ranked number eight in the U.S. for internet retail sales. Currently Sears trades at .60 book value (48.50 per share/ 80.80 book value per share). The company made 49 billion over last 12 months with a market cap of 6 billion. The company has 1.5 billion in cash with a low debt/equity ratio compared to its pier group. The company has been buying back shares in the open market which should further strenghten shareholder value. Lastly Sears sits on a huge real estate portfolio that is valued at $50 per share to over $100 per share.
Cash = 1.5 bil
Real Estate = 6 bil + (low estimate)
Lands'End = 1.5 bil +
Service Call Unit = 1.3 bil (13mil service calls a year @ $100 per call) low estimate

Total = 10.3 bil/126.4 mil shares = $81.50 per share

These figures do not include the values of the Kennmore, Craftsman, and DieHard brands that could be sold off or sold through different chains like Home Depot, Walmart, Target and AutoZone or different distribution channels which would increase revenue and put a much higher value on the company.

The author suggest further research before investing.

STOCKMANMARC