Buy SHLD
Many of my close personal friends know that when Google came out and then again shortly after (my ex will testify that when it was at the 150 range that I said in the car to her that she should buy it because it would go to 400), I told everyone that this was the can't miss stock of our time. I, and many others, was proven right.
Now, I will give you the next big stock to invest in and hold onto for about 5-10 years: SHLD.
Sears Holdings Corporation, led by Chairman Edward S. Lampert, is described as a "broadline retailer", but many investors will call SHLD a "virtual hedge fund". To understand why this is important, we need a quick history lesson. For ease, I will quote this MarketWatch story:
...
To get in on Lampert's hedge fund, an investor must first be invited and then commit a minimum of $20 million -- plus have the stomach to forget about it during the five-year lockup period. Sears Holdings shares, on the other hand, are trading for about a mere $180 a piece, so 100 shares would cost $18,000 -- a pittance in comparison, and you can get out at any time. In fact, you could call Sears Holdings a working-man's hedge fund. "Why would you invest in ESL when you can invest in Sears Holdings and you don't have to pay a 2% management fee; you don't have to give him 20% of the profits," said Dreher. "Everything he's doing with Sears Holdings investments goes right back to the shareholders."
So, he has the track record, the experience and the price is affordable to the common man. However, at around 175-180 dollars a share, isn't it priced out already? Not so if you believe Lampert who describes SHLD as a "$55 billion startup." How many startups do you know that have 55 billion dollars in assets to play with at its "inception"? In addition, the options market is generally a "big money" game led by those with the most to win and lose. When looking at option pricing, you can see that the 1 year and 2 year pricing targets are in the 200+ dollar range meaning at least a 10% increase in the next year or two. That's a pretty good ROI with a stock that has a Beta value of -0.13.
SHLD marks the first entry into the Hagrin.com Virtual Stock Picks tracker. I locked in my pick at the beginning of the day at 178 so we have -
SHLD
Buy @ 178 on 2/5/2007
Strategy: Long-term Hold
We'll track the performance of my picks over time and see if we can make some people some money. And yes, I do plan on investing my own real money in my picks so my money does back these wild speculations.
Comments
SHLD Buy Low
If you have been following the advice I have been giviing on when to profit take with SHLD, you would be up quite a few points (in fact, follwoing my advice would have you up over 8% currenlty). Last I spoke, we were going to get out of SHLD to take some profit and try to buy back at around 180 or so. Well, the computer glitch, bad news from China, less cash than expected, slowing appliance sales and market uncertainty has driven the stock under 175. However, this is an even better time to buy than I previously thought.
Lampert has improved profit margins mainly through cost cutting and not through growth. Therefore, the more time Lampert has to improve the business (which has a lot of room to grow and improve), the better Sears will get when competing within the marketplace. In addition, Lampert's investments will carry the company through poor retail times stabilizing the business over the long-term.
Finally, look at the options market for Jan 2008 and Jan 2009. The Jan 2009 numbers really haven't moved drastically. For the Jan 2008, it has taken a slight hit, but if you get in at 175 or lower, you're looking at a potential 10% gain in 10 months. Hagrin.com keeps it rating for SHLD as a Strong Buy.
SHLD - Up 4.5% in 4 Days
Well, although this is a long-term hold play (this is a stock valued at around the 200+ mark), you could have cashed out at 186 today, up 8 bucks a share or 4.5% in 4 days. Pretty nice play considering you could tie up your money all year in a CD and get a very similar rate. Definitely hold onto this stock though if you can afford to tie up your funds and watch SHLD rise over time. To me, this is one of the best market plays around right now if you can afford enough shares for it to make a difference to your bottom line while assuming minimal risk (in my eyes).
SHLD & FIG Updates
As you can see, SHLD has been a great performer. If you had sold to take some profit when I last commented and bought back at around 180, you'd be making another 4.5% right now. SHLD may not go down back to 180 this time so if you're waiting for it to come back to Earth, it may not happen. If you want to take profit, go ahead and do so, but realize you're probably not getting back in for anything less than 182-183.
As for FIG, it's given back almost 20% since the IPO due to the uncertainty about public hedge funds and a lack of diversity in their business. However, I say wait 1.5 to 2 months and then get in at a low price. If you look at Mastercard after their IPO (a company with a similar market cap and a recent IPO), their stock didn't move for about 2 months and now is hovering around 135% return in the last 6 months. If you have FIG, hold onto it.
hagrin
what are your thoughts on FIG? Do you think that it's being discounted because it's the only public traded hedge fund in North America?
FIG Analysis
Onec007 -
Great question. There are a whole bunch of reasons I think that we're seeing FIG being discounted after the IPO:
1) The IPO was successful! FIG was one of the best performing IPOs (if not the best?) within the last year. That being said, many may think that it "overperformed" and the price is now undergoing a correction. Although I haven't drawn the graphs or crunched teh numbers, my experience is that there is almost always a price pullback once the stock is offered on the secondary market.
2) Lack of diversity - When compared to such powerhouses such as GS (Goldman Sachs), FIG lacks a certain level of diversity in revenue generating activities. As "only" a hedge fund, many analysts are saying that they can't accurately predict how FIG will perform in a bearish market. Personally, I have confidence that they will be able to, but that's just my opinion.
3) Uncertainty - Now, I am of the opinion that uncertainty is generally a good thing (see Google). Like you said, since it is the only publically traded hedge fund, uncertainty seems to be circulating around this stock right now. I know that there are indicators that the big funds use to evaluate a stock and some of those indicators are near impossible with a publically traded hedge fund like FIG. However, if you believe in the business model, the company and you think that the street's perception is undervalued, then this makes FIG a great play a little further down the road once the price falls some more and stabilizes.
Thanks for the question!
hagrin
thanks for your honest opinions... I think the biggest uncertainty regarding FIG is their earnings projections. Due to the lack of diversity it is hard to project exactly how much they can make going forward. I keep hearing and reading that their P/E relative to GS's is overvalued. Lastly, I would assume that hedge funds would flourish during a bearish market because there are more corporations that requre managment skills to turn around their business, which leads to higher management fees for FIG and there would be significant discount of assets for FIG to acquire. Thoughts?
More FIG
Onec007 -
Excellent points and I actually agree with all of them especially concerning the P/E relative to GS. I've actually heard that a few times now (I think maybe Cramer said those exact words one night - I watch him while I'm at the gym) and I think there is some truth to that.
However, I think your other point about earnings projections is even more important and dead on accurate. This falls under that "uncertainty" category and we all know that perception fuels stock prices more than simple ratios and graphs most times. However, if you're a believer in the stock, there is great value in this stock due to the uncertainty.
As for bearish times, it's hard to say really. Without having had public data released during truly bearish times, it's pretty much speculation. You would think that a hedge fund would perform better during bull markets only because people are putting their money into the most attractive investments at the time. Hedge funds also generate revenue in two ways (from what I understand which is only a laymen's knowledge) - maintenance fees and performance fees. If performance for the fund suffers, it is possible that a large chunk of the fund's revenue disappears; hence, this is why many analysts want to see more diversification from strictly hedge fund stocks.
However, bearish times are more than a year away I think so if you keep that in mind, FIG numbers should outperform the next few quarters.
Hagrin... what do you think of the recent run-up of FIG
is this recent run-up for real or a bear trap? Also what do you think of the propose EMI Group buyout?
FIG for Real?
This is a great question to be asking at this time. Obviously, FIG's financials, level of diversity and other economic indicators haven't changed much at all in the last 2-3 weeks. Therefore, this run up is purely a perception move. Therefore, let's examine what could be changing the perception of the investing public.
The EMI Group buyout seems more like smoke than fire to me. If I am not mistaken, FIG is pretty late to this party and there are some other, more important, larger guests already at the table. In addition, EMI isn't in the best financial position either currently and has had two profit warnings recently. In fact, I don't think FIG wins this bid. However, and maybe more importantly, the perception has changed because FIG's strategy is starting to take focus with the railroad company purchase and the EMI bid. For me, FIG has always been a long-term play so this run up doesn't surprise me too much.
Just be aware that this really is more a perception move than one backed by financial data.
Fortress Investment Group
Fortress Investment Group is the asset and investment firm behind the scenes working with Sears and Lampert. Today, Fortress had its IPO and was extremely successful with an ending price up about 67.5% and just over 31 dollars (Symbol: FIG). With a long-term Sears position, you may want to supplement that play with an early adoption of FIG assuming the primary market run up doesn't price secondary market investors out. I will definitely be adding this to my monitoring list.
Working with Sears and Lampert
Do you have information about that? I had no idea that FIG was the poster child behind Sears comeback.
Clarification
I definitely used the wrong terminology when describing the relationship between SHLD and FIG (I need to proofread what I write). Thank you for pointing out a very confusing and misleading point ...
FIG and SHLD do not have an actual business relationship with each other. In fact, FIG serves as nothing more as a data point for judging SHLD's investment business. I really should have clarified that the FIG IPO will clarify the "behind the scenes working of SHLD and Lampert".
Sorry for any confusion.