Thursday, August 20, 2009

Eddie Lamperts Troubles at Sears?

Are they kidding? This is the major problem with journalists and why its so crucial to understand your investment. Journalists only know how to report the numbers and always seem to lack the ability to analyze the investment opportunity.

Sears Holdings (SHLD) the operator of Sears and KMart stores reported a dismal quarter this morning. While I'll concede that it was a bad quarter, it wasn't exactly all that shocking that a bad retailer like SHLD would report a loss in this environment. If they hadn't have reported such a great Q that ended on May 1st, then this result would've been much more in line with expectations.

Still the issue isn't with the earnings, but rather that investors just don't get the reason to invest in SHLD. It sure isn't because they own Sears stores. I've written a couple of articles and you can find many more on the web about the value of the real estate, brands, and net inventory (inventory - debt = roughly $6B). The current valuation of $7.8B leaves very little value left over for valuable brands like Diehard, Craftsman, Kenmore, Joe Boxes, or Lands End and not to mention the crown jewel of nearly 250M square feet of very valuable retail space. Even at only $100/sq ft the real estate alone is worth $25B or nearly 4x the market valuation.

So watch this video from CNBC or read numerous reports about how bad the retail operations are and just laugh all the way to your broker and buy more shares on the dip. Eddie Lampert knows what hes doing which is to continually buy back shares and reduce the float. You don't want to be out of the stock when Eddie announces plans to monetize these assets. He controls nearly 55% of the outstanding shares and several other hedge funds quickly bring the total up to over 90%. With such little outstanding float, I'd hate to be short and wrong. As the housing market recovers so will Sears that is heavily reliant on Kenmore sales.

This isn't so much as a trouble as an opportunity.













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