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Sears up over 50% since the recent negative article in Barrons


philassor
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http://finance.yahoo.com/q?s=SHLD

 

The recent super negative ariticle in Barron's about SHLD opened my contrarian ears. the fact is after a brief dip to the lowers 60s, the stock rebounded dramatically since. Is it Mr. Market's mental illness, or malice from Barron's or poor journalism? What was remarkable is the negativity of the article was inversly proportional to the jump. :'(

 

The stock is up 14 % today....

 

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Guest Bronco

Eddie Lampert does have a cash flow company here - as it has the capability of $1B in FCF per year.

 

However, the share buybacks have been a bust in my opinion.  How is this guy compared to Buffett with that kind of capital allocation?  There is no comparison.

 

That being said, $60 was too cheap.  During the March 2009 crash, I wrote a bunch of $15 puts for some pretty high premiums.  I would have been smarter to buy calls, but didn't b/c I didn't like the cash allocation by Lampert.

 

Overall, I wouldn't chase the stock in here - but if you hit the 50% gain - congrats, job well done.

 

 

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Guest Bronco

Yeah - it seems like the media loved Lampert right after the Kmart deal and hated him 2 years later.

 

People got excited - inferring that Lampert would do what SNS is doing now - basically, investors thought Sears Holding would become a capital allocation machine.  Don't think Lampert ever suggested that...maybe a small footnote in a F/S but nowhere else.  And some restructuring of corporate divisions (big deal!)

 

There is some value in Sears - real estate, free cash flow.  But it is a hard pill to swallow b/c the stores suck so bad.  They do have a ton of sales overall though.

 

Although I haven't been impressed with Lampert and Sears, the worst part of Lampert was his purchase of Citi.  That was terrible.

 

All that being said, he is worth about 500m x what I am, so take everything with a grain of salt.

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I think a lot of the silver spoon in mouth investors "missed" shld because "the stores are bad". as if everybody shops at Barneys and bloomies. Well they don't. A lot folks HAVE to shop at those "terrible" kmart stores because they offer good prices on the stuff they want. These people are not heard to utter, when they get back home with their stuff, "the stores sure suck".

 

Kmart is the type of place you shop at when you first immigrate to the U.S, have no money and don't know better.  A few years back, WSJ or some other  newspaper did an study that came back with Kmart charging 20%+ more than other stores for similar items, so no its not cheap.  Kmart has a virtual monopoly in Goleta, CA even then its mildly successful.  Has Eddie found a full time Ceo yet? 

 

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Eddie Lampert does have a cash flow company here - as it has the capability of $1B in FCF per year.

 

However, the share buybacks have been a bust in my opinion.  How is this guy compared to Buffett with that kind of capital allocation?  There is no comparison.

 

 

How can you call his buyback a bust? He has purchased a lot in the 40s and up to 80s... so, at the current price... those buybacks were worth wild..... what's your definition of a bust?

 

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How can you call his buyback a bust? He has purchased a lot in the 40s and up to 80s... so, at the current price... those buybacks were worth wild..... what's your definition of a bust?

There was a huge amount of shares (billions of dollars worth even) bought in 2005, 2006 and 2007; right before the bottom fell out of the stock market. In fairness to Lampert though, at least he didn't lose his nerve, he kept buying and averaged the cost down. The last time I looked, his average cost per share was $120, although it's probably more like $100-$110 a share since then. If Warren Buffett is an A+ for capital allocation, I would be giving Eddie a C-.

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Guest Bronco

For a board based around managers (Buffett, Watsa) etc... that allocate capital to the best possible source (or attempt at least), I cannot agree with a philosophy of buying back shares in one's own company at any price.  Lampert is the latter, not the former.

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Just because the bottom fell out of the market in March and the price of SHLD dropped like a rock doesn't make his initial purchases necessarily a bad decision.  The question to answer is 'what was the intrinsic value of the shares vs the market price at the time?  Also, what were other potentially better uses of capital at the time?'.  We can't be applying hindsight bias here.  Bruce B. went to every local district to figure out the price of the Real estate back when SHLD was trading in the 120+ range.  He said that *conservatively.. conservatively* they estimated the value of the real estate to be about $95-100/ share.  Then he asked.. what do you pay for the brands (Die hard, Ken more, Craftsman, Lands End)?  What do you pay for the largest appliance servicer in the US?  What do you pay for the sears.com website?  Just because subsequent to that there was a huge liquidity crisis that caused all sorts of forced selling, doesn't make the buyback decision a bad decision.  I'm not saying Lampert is a saint and has done no wrong, and he has admitted that he obviously wishes he hadn't bought back shares at those higher prices.  But I'm not sure we can say with the benefit of hindsight that it was a bad decision...  BRK suffered a 50% plus drop back in the day too if I remember my history..

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Guest Bronco

Everyone is entitled to their opinion, but I think Buffett has proved over a number of years that there is a huge advantage to having a strong capital base AND allocating capital to the best source.  Sears, IMO, does not have a strong capital base.  I believe Lampert will continue to buy back shares at any price. 

 

Buffett was able to negotiate those GE and GS preferreds.  He simply couldn't do that without a strong captial base. 

 

There is no evidence that Lampert is looking to allocate capital to the best possible source.  That is a really tough argument to make.  Everyone makes mistakes, so everyone will make bad investment decisions at some points.  But Lampert isn't even attempting to allocate capital like Buffett.

 

I also question Lampert's motives - historically, Buffett has put shareholders first.  With Lampert, I can't tell if he is trying to serve himself, his hedge fund partners, or the shareholders first.

 

All that being said, every asset has a price and a value.  I once owned SHLD, sold some puts against SHLD, etc... Clearly, the $50-$60 price was too low.  I would not be a buyer today. 

 

Imagine if Lampert kept all that cash, and then headed into the crash with 3, 4 or 5 billion in cash.  Then maybe we would have seen the wonderkid in action.  Wait for the fat pitch to hit.  We'll never know.

 

 

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Guest Bronco

Don't want to beat this to death so these will be my final comments on this topic, but I can't remember a time or stock price when Lampert didn't take any excess (and maybe beyond) capital and buy back shares.  So I believe it is a fair statment. 

 

Also, fair to say we disagree...I am fine with that.  My favorite investment right now is Loews out of all the capital allocators - but I wish everyone well in their separate investments.  I find Loews assets at a $16B market cap are much better than Sears at $11B market cap on a relative basis.

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I think that there are a few ways you can read Eddie's actions:

 

1) His buybacks were simply a repayment of excess to shareholders... price is set by shareholders, so he just accepted it and bought it back.  Value be damned.

 

2) His view was that even at the top ( and I should say at that time), his view of value was $160+ / share

 

Now certainly you can argue that he was wrong about $160, or that the value deteriorated (some may view that as "wrong"), or you may say that value is still well above and time will prove him a genius.  You can also say that he was / is acting silly.

 

My personal view is that he felt value was near or above $160, and I personally believe that value was destroyed during this downturn in a small way.  However, I do not feel that $160 is an outrageous price today.

 

To have shrunk share count, reduce debt, and perform how Sears had all at the same time is pretty good in my view.  Many people seem to compare SHLD to other retailers who spend massive amounts on growth capex.  We can argue that both decisions were poor uses of capital, but I prefer Eddie's strategy (if you can call it strategy).

 

Ben - long (mostly debt)

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  • 1 year later...

Is a SHLD short squeeze taking place?

 

http://www.google.com/finance?q=shld

 

http://seekingalpha.com/article/296062-is-sears-holdings-finally-turning-into-a-reit?source=yahoo

 

Remember the outstanding float is limited as Lampert controls some 65M shares via his RBS partnership and Bruce Berkowitz's Fairholme Funds own another 15M shares. Count up other institutional holders and the public float is miniscule to even possibly negative. If Eddie makes any progress at turning the real estate and brands into major growth centers while also reducing costs from having less space, watch out as SHLD might rocket.

 

-also interesting...

 

Remember SHLD only has a $5.6B market cap while Simon Property Group (SPG), a leading property leaser, is worth $33B. SPG has a lot less real estate than SHLD controls.

 

In my earlier article, I showed how brands similar to ones owned by SHLD were worth over $19B. That's a combined value of $52B if SHLD was able to build a successful REIT and grow the brands. This value might seem lofty for now, but SHLD has other untapped potential including brands not even analyzed, like Lands End.

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I think it's hard to read too much into the volatility of SHLD.  Today's move could be a little mini-squeeze.  It wouldn't shock me if Lampert played his buy-backs in such a way as to cause problems for the shorts and induce squeezes from time to time. 

 

I don't think today's move is really about leasing SHLD store space to third parties.  That's not really a new thing and a few hundred thousand sq ft of subleased space isn't a big deal one way or the other.

 

I still own a small amount of SHLD.  Given the poor operating results over the last year, I think the most interesting question is still - what's Eddie's end game?  He controls over 60% of the shares, so he could stop buying right now and retain full control over the company.  So, why keep buying/retiring shares?  I'd guess he wants to own it outright at some point.  But, when? And, how do the minority shareholders get treated when he takes them out?

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