SHLD recently reported a superb quarter and as usual the SHLD bears tried to cut the stock down. Every quarter they find some excuse to hammer the stock. The stock selling happens like clockwork after the quarterly report is issued. Also like clockwork is my equal and opposite reaction to this phenomena by adding more stock to my LakeView Asset Management client, family and personal positions. I think so much of SHLD that it is also in my children’s custodial accounts. Time and time again, the earnings related selling provides more opportunities to get into a publicly managed Eddie Lampert investment. Even when the stock sold off more than $2 in early trading March 5th, I was back in nibbling again. SHLD closed higher on that day despite a weak market and a very bearish closing hour.
You can’t look at SHLD as just a retail story. If you did then you missed out on a 650% rise in the stock since the end of 2003.
What is Lampert doing at SHLD that makes it such a compelling investment? Many things. First, he has been on an asset sale program for several years to rid the company of unwanted real estate and operations. While this is happening, he has focused on the core retail business by bringing in a professional merchandising team, focusing on margins rather than same store sales and building up the apparel department. This is now paying off. Recently, Lampert has been using his hedge fund acumen to make strategic investments through the swaps market, a business that I built up at Merrill Lynch over a decade ago. Finally SHLD has been using its strong cash flow to buy back stock.
Lampert's letter to investors is a must read.
The next step in this process will be for Lampert to start acting more Warren Buffett-like and acquire another company. I think that BJ’s Wholesale (BJ) is an attractive target for Lampert but could get snapped up by another smart private equity firm. I have also bought BJ for the accounts of my clients and my personal account.
At the time of writing Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of BJ, MER and SHLD, in addition Scott Rothbort owns call options in MER -- although positions can change at any time.