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Billionaire Eddie Lampert Bought More Sears From His Hedge Fund

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Filings with the SEC have disclosed that billionaire Eddie Lampert purchased 1.2 million shares of Sears Holdings Corporation (NASDAQ:SHLD) from his hedge fund ESL Investments on March 4th at an average price of $44.36 per share. Lampert also serves as the CEO of Sears. The $5 billion market cap department store has been one of ESL’s signature holdings for some time (see Lampert’s stock picks); it is down 48% in the last two years as competitive pressure has intensified both from big-box discount retailers such as Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) and from online retailers such as Amazon.com, Inc. (NASDAQ:AMZN). The stock is up about 7% on the day following news of Lampert’s purchase.

Sears’s poor fortunes have driven away many hedge funds. We track 13F filings from hedge funds and other notable investors, in part to monitor individual holdings over time and in part to help develop investment strategies (for example, we have determined that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). Our database of filings which report positions as of the end of December has ESL and Bruce Berkowitz’s Fairholme as the two largest holders of Sears among all filers; Fairholme had about 18 million shares in its portfolio at the end of 2012 (find Berkowitz’s favorite stocks). Horizon Asset Management, which is managed by Murray Stahl, had the next largest position at 1.8 million shares (check out more stocks Horizon owns).

ESL INVESTMENTSSears’s fiscal year ended at the beginning of February 2013, and the company has already reported its results. In the fourth fiscal quarter, sales figures were not too bad- down 2% compared to the same period in the previous fiscal year- but earnings per share of $1.12 were not enough to pull the retailer into the black for the year. In fact, Sears had reported net losses in each of the first two quarters of the last fiscal year, and then losses of $1.99 per share in the third quarter.

As we’ve mentioned, Sears has a market cap of about $5 billion (as well as over $3 billion in debt compared to about $600 million in cash), so this places it in a distressed situation. Wall Street analysts actually expect EPS to worsen in the current fiscal year and only slightly recover- not even to current levels- in the year ending in January 2015. The stock is also a popular short.

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