Sears $SHLD Netflix $NFLX Rally in First Quarter, Hedge Funds Win

ESL INVESTMENTSRecently in Bloomberg’s Inside Track, Scarlet Fu discusses the hedge fund managers that have had the biggest gains so far this year. On the show, she talks about fund managers Eddie Lampert of ESL Investments, Bruce Berkowitz of Fairholme and John Griffin‘s Blue Ridge Capital and how they were able to beat the odds thanks to the surprise performances of Sears (SHLD) and Netflix (NFLX), which have gained 110.79% and 59.25% year to date, respectively.

Eddie Lampert and Bruce Berkowitz owned significant positions in Sears at the end of the fourth quarter. Lampert owned 48.03 million shares in Sears at the end of December, a position valued at just under $1.53 billion while Berkowitz had a 16.11 million share or $511.93 million stake in the company. Sears had been looking pretty rough at the end of 2011. It had just announced that it could be closing as many as 120 stores after it became apparent that its sales results were much worse than expected.

But, Lampert didn’t lose faith. In January, he bought 4.46 million shares for his personal investment in Sears from his fund ESL Investments, a market value of roughly $145 million. He further increased his personal stake in the company, buying another $12 million in shares on the open market. Since all this happened, Sears’ share price has soared. Investors are encouraged by the announcement that Sears would be separating some of its smaller businesses, like Craftsman and Kenmore,  and selling some of its real estate – efforts that are expected to net the company as much as $770 million. There is also some speculation that Lampert could take the company private. Whatever the reason, the company’s share price has increased dramatically since the start of the new year.

Netflix has also been a winner. While there were many who thought that the stock would plummet after losing its Starz contract, the company has proved to be more robust than that. It was able to develop a range of new agreements, like its one with the CW. Further, right now, there are very few companies presenting alternatives to the service – Amazon Streaming Video and Hulu are two close rivals with similar pricing that stream both movies and television shows. Also, Netflix, as an early mover, has apps already in place in a variety of technologies that its competitors simply do not. For instance, if you buy a Internet television, there will likely be an app already built in for Netflix but the system will likely not support Hulu or Amazon. John Griffin’s Blue Ridge Capital had 2.37 million shares in the company at the end of December, in a position valued at $163.87 million or over 3% of its total portfolio, after upping its holding by 17% during the fourth quarter.

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