Billionaire Eddie Lampert’s Latest Stock Picks

ESL INVESTMENTSEddie Lampert founded ESL Investments in 1988 and has become a billionaire due to the fund’s strong performance; he has also become the chairman of Sears’s Board of Directors thanks to ESL’s large stake in the company. We have gone through the fund’s 13F for the quarter that ended in September and searched for major changes from last quarter that either show that Lampert and his team like or dislike a specific stock, or reflect more general changes in their investment thinking. Read on for our analysis of the investment activity disclosed on the 13F and compare Lampert’s positions to previous filings.

Netflix. Lampert took a dive into Netflix, Inc. (NASDAQ:NFLX), initiating a position of about 700,000 shares. Fellow billionaire Carl Icahn recently purchased a combination of shares and call options in Netflix that gives him the potential to control about 10% of the company (read more about Icahn’s purchase); so far he hasn’t said much more than that he considers the stock undervalued. Others see the company as a potential takeover target. While Netflix continues to do well on the top line, expenses are up as it tries to expand internationally and as content providers begin to squeeze it on fees. Its market capitalization of $4.5 billion represents a very high multiple on trailing earnings, and analyst consensus is that earnings will actually decline at least in the near future. We don’t know what to think about the company and so we’d avoid the stock entirely.

Rebalancing retail. The fund made significant moves in three retailers: it sold some shares of The Gap Inc. (NYSE:GPS) and AutoZone, Inc. (NYSE:AZO) while more than doubling its stake in Big Lots, Inc. (NYSE:BIG). Gap, the apparel giant which also owns Old Navy and Banana Republic among other brands, has rocketed up 79% this year so it’s possible that Lampert wants to take some profits. The rise in the stock price has left Gap with a trailing P/E of 20, which means that the company has to see strong growth in the future to justify the stock price. Given how large Gap already is, we doubt that we could be convinced to go long. Autozone has been experiencing moderate growth, carries a trailing P/E of 16, and has a low beta of 0.3; we’re not sure why ESL sold shares here, as the company doesn’t look particularly overvalued. It might even be good to look at as a value opportunity. Big Lots is a smaller retailer, with a market cap of only $1.6 billion. Its multiples look good- 10 times trailing earnings and 9 times forward earnings estimates- though net income has been down recently and there’s considerably short interest. We’d like to see if the business can stabilize in coming quarters; if so, then it would clearly be a value stock.

Selling Capital One. ESL sold about a third of the shares of Capital One Financial Corp. (NYSE:COF) that it had owned at the end of June over the course of the third quarter. The credit card issuer is up 32% in the last year, as the industry in general has seen strong interest from investors. Capital One has been performing quite well- its earnings growth has actually gotten ahead of the stock, with net income 45% higher in the third quarter than a year earlier. It now trades at 10 times trailing earnings. John Paulson had reduced his own position during the second quarter of 2012 but had still owned over 4 million shares at the end of June. We think that it is a good value opportunity in the credit card industry.

We don’t get ESL’s moves on Netflix and Capital One. The credit card issuer looks like a buy, and Netflix just seems too unpredictable to have any position in. Its retail rebalancing, on the other hand, generally seems to us like it could be a better move: Big Lots has good potential as long as its earnings don’t continue declining, and Gap carries pretty heavy multiples. Autozone is a trickier question, as its pricing doesn’t look that bad, and we don’t think holders of the stock should necessarily be following Lampert in selling.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!