By Eric Winter
Ranked 367th on Forbes's list of the world's richest people, Edward Lampert has amassed a net worth of roughly $3bn. The ex-Goldman Sachs analyst has been running his fund ESL Investments for 25 years now, starting with $28mm in seed money in 1988. His fund recently released its 13F for the last quarter of 2012, giving investors insight into ESL's positions and outlining the fund's top-ranked holdings. We research these SEC documents heavily and have formed our own strategy based on our analysis; our small-cap strategy has earned over 29% since its inception in September 2012 (learn more about it here). Read on to see Lampert's top five picks below.
As chairman of Sears Holdings Corp. (NASDAQ:SHLD), the company remains Lampert's largest position, with almost 40% of the fund's $3.8bn allocated towards it. Lampert continued his trend of unwinding his position, reducing it this time by 35% going from Q3 2012 to Q4 2012. The stock has continued to struggle, losing almost 37% in the past twelve months alone. Lampert is hoping to change that by stepping in as CEO in addition to his chairman duties; he assumed that role on the second of last month. Regardless, SHLD still remains unpopular amongst sell-side analysts, citing competition from other retailers and other macroeconomic issues. Stephen Mandel of Lone Pine Capital has a $52mm put position in SHLD.
AutoNation, Inc. (NYSE:AN) is another very large holding in Lampert's concentrated portfolio with an investment of $1.37bn. The automotive retailer returned 33% to investors who bought in this time last year, pushed along by a number of earnings beats in 2012. The company is looking to promote its brand in 2013 by retiring its regional names in favor of its AutoNation moniker, starting on June 1. AN's most recent earnings announcement showed favorable growth in both EPS and revenues, resulting in an upgrade to Outperform by Zacks. Billionaire Mario Gabelli of GAMCO Investors carries 1.2mm shares of AN in his portfolio (view his fund's top stocks here).
ESL Investments has $444mm dedicated to The Gap, Inc. (NYSE:GPS); the quarter prior saw ESL holding over $690mm worth. GPS has been another great performer in terms of stock appreciation, and analysts are still expecting more, as their one-year price valuations are still 12% away from current trading levels. The Gap recently bumped up its quarterly dividend by 20%, giving the stock a forward dividend yield of 1.82% versus 1.5% last year. GPS will be facing a tough period of comparable-store sales figures, according to Sterne Agee, who gave the firm an Underperform rating at the start of this month. Jim Simons of Renaissance Technologies recently acquired another 2.18mm shares according to his latest 13F.
Sears Hometown And Outlet Stores, Inc. (NASDAQ:SHOS), the spinoff from Sears Holdings Corp., makes an appearance in ESL's top five as well. When it was still a part of SHLD, the company accounted for $2.6bn of Sear's profits last year. Despite trading below its opening bid when it debuted on the NASDAQ in October of last year, SHOS has racked up a gain of 41% since then. Similar to SHLD, however, SHOS still faces tough competition from the likes of Lowe's and Home Depot, who have amplified their appliance offerings. Billionaire Steven Cohen of SAC Capital Advisors initiated a $8.6mm position in SHOS last quarter.
Financial security company Genworth Financial (NYSE:GNW) is ESL Investment's fifth-largest position. Lampert opted to keep his shares steady from Q3 to Q4, maintaining 2.36% of his assets in the stock. GNW reported fourth-quarter 2012 earnings at the start of last month, beating analysts' EPS expectations by a wide margin although missing on the revenue front. The company is in talks with two private equity firms to sell its wealth management business; the deal would be valued around $400mm to $450mm. Seth Klarman of Baupost Group owns 15mm shares of GNW.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article is written by Insider Monkey's writer, Eric Winter, and edited by Meena Krishnamsetty. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.