Thursday, November 23, 2006

Sears Capital LP

OK, so that entity doesn’t really exist. At least I don’t think it does. But Sears Holdings (Nasdaq: SHLD) does. I first wrote about Sears and Eddie Lampert in October 2005. The stock is up about 50% since then and may not be the bargain it was back then. But it’s too early to bail.

Mr. Lampert has kept his word and emphasized profitability over top-line growth (sales are declining) while adding to his cash pile. As predicted, Mr. Lampert is also beginning to take advantage of the freedom he has been given by the Board to use the cash for acquisitions and investments as he sees fit. Last week’s earnings announcement showed a handsome profit from Mr. Lampert’s investment activities using fancy, albeit risky, derivates known as total-return swaps. It is still early in the game and I would venture to bet that Mr. Lampert is looking to make a more substantial move. I am not sure if I believe rumors that he has been sniffing for an acquisition with potential targets being companies like Anheuser-Busch (NYSE: BUD) and Home Depot (NYSE: HD). No matter. Over the past 18 years he has proven to be a worthy investor, perhaps, dare I say, as good as Mr. Buffett. This ride may be bumpy but I think patience will be richly rewarded in the long-term.

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