Archive for October, 2013

SHLD: More asset monetizations

October 29, 2013 Leave a comment

Today Sears comes out with a press release discussing more asset monetization. The company is looking to spin-off its Lands’ End brand and looking at ‘repositioning’ the Sears Auto Center. Oh yeah, they also mentioned that the same-store-sales has declined compared to prior year, incase anyone cares. The whole pay with Sears is the asset monetization, the turnaround at the retail store is a ‘pleasant surprise’ if it every happens.

Many readers asked me why I bought Sears. It has been a favorite play of value investors for years. So what made me buy it now? For me, the play became a reality when Lampert became CEO. That was the sign that he is done w/ trying to turn around sales. Him taking the helm was a clear sign that he is going to look at creating value out of Sears’ assets with the least damage to the retail operations. If anyone looks at his recent actions, since becoming CEO, it is clear that he has been creating value for the shareholders.

I don’t know what the true value of Lands’ End is. We know the brand is mostly an online e-commerce retailer. The brick-and-mortar business for them is very limited, although if you have been in the stores there is plenty of foot-traffic. You can look at Baker Street’s most recent presentation on Sears to see the valuation of Lands’ End (slides 95-101). They believe the brand is worth 1.5B conservatively. For a brand that has a strong following, that mostly does non-retail-store sales, there is a huge opportunity to grow. For an independent company, or potentially acquired by someone else, this could be a company that is worth more than the $1.5B valuation.

Most people remember the Orchard Hardware Supply spin-off. Sears loaded it with debt and spinned it off. What many investors don’t remember is what happened next. OHS filed for bankruptcy. The debt basically killed the company. Lowe’s came in and acquired the company. Lowe’s doesn’t have a large foot-print in the California area, this is where OHS has most of its stores. Interestingly, Lowe’s is now working with OHS to grow. OHS is working through redesigning its older stores, expanding outside of California, and looking to drastically increase footprint.

I think the spin-off of Lands’ End and future transaction for Sears Auto Center will be huge value creation for shareholders. Sears Auto Center has a known brand and great following. Again, there is potential to grow this business outside of the Sears brand. If you look at Baker Street valuation, they put a conservative valuation of $500M. Based on today’s news, we are looking at almost $2B in value creation from a company that was valued by the market at less than $6B (market cap). I’m not even accounting for the Sears Canada news.

Overall, I think Lampert is finally creating the value that many shareholders saw years ago. In the next 12 months this will be a very different company. Shareholders that stuck with Sears will benefit tremendously.

Categories: Updates

Portfolio update

October 11, 2013 2 comments

One of my bigger holdings going into 2013 was MBIA. It has worked out pretty well right after the settlement. Although there is still plenty of upside from the ratings upgrade, I decided to sell out of my MBIA position completely. There were just too many opportunities that were likely to work out before MBIA’s rating upgrade.

I’ve also gone to a bit more diversified portfolio. My top 2 positions still account for over 45% of my portfolio, and top 4 account for 80% of the portfolio. The remaining positions are less than 5% each.

I bought up the following stocks:

Sears Holdings (SHLD): After the most recent quarterly numbers, the stock got hammered. Everyone is so focused on the retail operations that the stock is selling at huge discount to liquidation. Now Sears cannot liquidate that quickly. But the company has been doing lots of work to build up a structure that shows the break-up value of Sears. And the break-up value of Sears is multiples to current market valuation.

XPEL Technology (XPLT): The company makes auto paint protective film. If you got one of those collectible cars or the luxury cars, then you are an ideal customer. XPEL’s film is used to protect car paint from scratches, dents, and weather. The company is growing very rapidly, is profitable, and has the best product in the market. This is a microcap company that was rarely trading. Although in the last few weeks, the trading activity has picked up quite a bit, largely due to the VIC write-up. The company hasn’t made a major push in PR to get the investment word out, but I expect 2014 to be the year they start more Investor Relations activities. I believe this one will be a multi-bagger in a very short period (it is almost a double from my purchase price, in about a month).

Fannie Preferred (FNMAS): This is one of those where I just copy Berkowitz. The play on this is very well known. Berkowitz and other investors have filed a lawsuit against the government regarding the gov’t taking over all the profits. I think the odds are very good that investors will walk away winners and will make multiples on their investment.

Basket of micro-caps: This is a theme that is based on my view that we are in for a great few years for the US economy. I think the economy is doing well, not great, and it will keep getting better. These small micro-caps were selling for extremely cheap valuations. So my investment is based on the cheap valuation and the strong upside if the US economy does well.

Categories: Updates