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Buy SHLD


By hagrin - Posted on 05 February 2007

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:

Sears Holdings Chief Executive Edward Lampert is regarded as one of the top five hedge-fund managers in the United States. He has a stellar track record with an average annual return of about 29%, before fees, since he went out on his own with ESL Investments in 1988. In 2005, he became the first hedge-fund manager ever to breach the $1 billion mark in income, according to Alpha magazine. If Lampert can generate returns anywhere approaching that by turning the retail behemoth's heavy cash flow into yet more money, then why not, argues Deutsche Bank analyst Bill Dreher. Like Buffett -- who Lampert follows closely and often quotes -- Lampert may be able to turn an iconic American name into a monolithic investment stock, though his approach to retail would be considered nontraditional.

...

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 -

Pick #1
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.