Monday, 01 June 2009 01:00

Sears Q1 2009 Update

The Sears Q1 2009 update is available. I have left a note in the private discussion forums regarding aspects of Sears not mentioned in the note.

Sears Q1 2009 Update Sears Q1 2009 Update 2009-06-01 12:28:26 398.99 Kb

I will probably be releasing the first of the long-biased research in about 2 weeks (probably less). I have found some pretty strong companies. I will explain how I will be using the research (basically as a medium to long term hedge and volatility dampener) before I actually release the research. Let it be known that the recent run-up in many stocks is not fundamentally based (ie, unsustainable) therefore strong fundamental long picks will not necessarily produce the results that layman would expect in the short term. I will be discussing this in depth as the research release draws closer.

Additional, new non-financial and non-real estate related short bias research will be available during the same time frame.

Last modified on Monday, 01 June 2009 01:00

45 comments

  • Comment Link Reggie Middleton Monday, 29 June 2009 10:33 posted by Reggie Middleton

    According to bloomberg, sears is courting bad risks by offering debt forgiveness, and the ability to keep the debt funded appliance, in the case of unemployment. Isn't this the implied non-recourse idealogy that spurred the subprime/alt-a lending crisis? Isn't sears simply inviting the worst risks in an attempt to pack revenue in the front end? Hey, maybe its just me, but this seems to be a tad bit risky and imprudent.

    [quote]Sears Holdings Corp., the largest U.S. department-store chain, will let customers who lose their jobs suspend payments and keep appliances bought with store credit cards in an effort to bolster sales in the recession.

    Customers who spend at least $399 on appliances and related merchandise between July 6 and Aug. 1 will have one-twelfth of the purchase price credited to their account for every month they are out of work, said Larry Costello, a company spokesman. Those who are jobless for more than a year will have the full debt forgiven, he said. The offer period may be extended, he said.

    “We thought this would be a way to get folks to jump in where they’d been a little reluctant,” Doug Moore, president of Sears’s home-appliance unit, said in a telephone interview.

    The retailer, based in Hoffman Estates, Illinois, is running the trial program to spur spending on refrigerators and washing machines as consumers hold off on bigger purchases amid declining home values and mounting job losses.

    Customers who lose their jobs between 60 days and one year after having made the purchase qualify for the offer, Costello said. The program also covers delivery, service and installation costs, he said.

    Sears advanced 95 cents, or 1.5 percent, to $65.85 at 9:53 a.m. New York time in Nasdaq Stock Market trading. The stock gained 67 percent this year before today.
    [/quote]

    [url]http://www.bloomberg.com/apps/news?pid=20601087&sid=arGRzYBsWFaI[/url]

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  • Comment Link Reggie Middleton Monday, 08 June 2009 15:46 posted by Reggie Middleton

    Again, I am discussing the fundamental prospects of the company, not trade recommendations. As for who stopped shopping, it is most likely the prudent ones who do not want to put themselves in a whole, or those who are unemployed and already in a whole. I don't see what spring coiled has to do with it. If there is no fundamental reason for demand, there's a good chance that there will be no demand.

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  • Comment Link phirang Monday, 08 June 2009 12:19 posted by phirang

    Seems like a coiled-spring: people have stopped shopping since the Fall...

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  • Comment Link Reggie Middleton Monday, 08 June 2009 11:22 posted by Reggie Middleton

    Sears is the most expensive in its peer group - by far - on a P/E basis. Since this is a fundamental analysis site, fundamenals are all I cover in the research. How crowded the trade is is a different matter.

    I understand your criteria, but those criteria didn't work at on BSC, LEH, MBIA, ABK, GGP, AGO, Target, etc. - All had billionarie fund managers, big brand names, big fund ownership, seemingly undervalued assets (at least according to management and billionaire brand name investors talking their book - most of whom lost their book) and (at least the appearance of) rich cash cash flow. They still were decimated.

    I am a stern disbeliever in brand name investor investing. Not to brag, but my 10 year record is much better than most brand names, and I have been taking the absolute opposite of many of them over the last two years, which has drivern big profits. I am not trying to toot my horn, I am trying to illustrate that they are flesh and blood, just like everyone else. The major difference between them and most is that they are full time professionals, but they are not fool proof. For the most part, actually, far from it.


    Sears has nearly doubled, but so has many of the weakest companies in the market. Keep in mind that the entire market moved, so one shouldn't attibute a major momentum move to the fundamental attributes of a single company, unless that company didn't move. Sears produced a profit by cutting costs. Kudos to managment for that, and that is what I would look for to become more bullish on the company. The problem is that their revenue drivers are failing both on an absolute basis, and in comparison to their peers. Their profit was produced on both lower comp sales and lower aggregate revenue, if I am not mistaken. That means that they can only pull that rabbit out or their hat once, maybe twice max. Now, if they can do something about their revenue drivers, that is a different story.

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  • Comment Link jsiegel Saturday, 06 June 2009 01:13 posted by jsiegel

    Even if one isn't bullish on Sears, why join the absurdly overcrowded short trade on SHLD, which has literally doubled since Reggie made his home movie? If you had to come up with a checklist of stocks NOT to short, it might go something like this:

    1. Major owners aligned with shareholders
    a. especially self-made billionaire financial whizzes
    b. especially smart value investors with respectable long term records
    2. Consistent profits
    3. Consistently cash flow positive
    4. Reducing debt
    5. Improving operations
    6. Buying back shares at strong clip
    7. Strong brands
    8. Undervalued assets
    9. Well capitalized
    10. Undervalued versus Peers (Target trades at .5 x sales and 14+x CFFO)
    11. Improving metrics relative to peers

    I could keep going but I think people get the point. If Sears can tweak ops to bridge half the gap of competitors, it probably doubles by Christmas from here. Now Green Mtn. Coffee that's an interesting one to look at, but it is crowded and it does have some of the aforementioned characteristics. Personally, I say now is a good time to go long SHLD.

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  • Comment Link persistentone Wednesday, 03 June 2009 01:20 posted by persistentone

    Rumi, what do you think about some of the companies supplying equipment to the oil services sector, such as T-3 Energy (TTES)? They put up decent return on equity and seem extremely well managed.

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  • Comment Link shaunsnoll Tuesday, 02 June 2009 19:21 posted by shaunsnoll

    doesn't Sears sell Whirlpool?

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  • Comment Link Reggie Middleton Tuesday, 02 June 2009 16:39 posted by Reggie Middleton

    Now that's a conspiracy theory worth looking into.

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  • Comment Link SamGoody Tuesday, 02 June 2009 16:37 posted by SamGoody

    you think of the possibility that GE could be helping themselves by helping Sears stock up on GE Appliances.

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  • Comment Link NDbadger Tuesday, 02 June 2009 16:05 posted by NDbadger

    Seems like everyone is willing to lend SHLD $$$. They have decent cash flow since their leases were written so long ago at favorable terms, but their businesses continue to deteriorate. Anyway,

    http://finance.yahoo.com/news/GE-Capital-lends-400M-to-apf-15415848.html?.v=3

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  • Comment Link shaunsnoll Tuesday, 02 June 2009 16:00 posted by shaunsnoll

    that sounds like a great environment Reggie! will be interesting to see both their idea and get insight into how their investment process and idea generation is formed and conducted :) looking forward to that for sure.

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  • Comment Link Reggie Middleton Tuesday, 02 June 2009 15:57 posted by Reggie Middleton

    Okay Phirang. The verdict is in, and in general it appears as if your tone is not welcomed. I could have just kicked you off the board, but that is not the way I want to run things around here. Don't get me wrong. YOU are welcomed, just not your rude and/or unsupported comments. Throw some hard data and associated analysis behind your comments and they will be accepted much more warmly. BTW, let it be know that I actually have my analysts compete with each other and compete with me in terms of ideas and viewpoints to make sure that I don't suffer from the 'hubris' effect. Well, that competition finally delivered a significant disagreement, which I will post in the private discussion forums later tomorrow after the other side of the argument is able to proffer their complete rebutall. Long story short, a prospective short analyzed by oen team came up as a prospective loan analyzed by another team. They are in the process of battling it out now, with me as the referree.

    No less than 3 to 4 different heads vet every idea that makes it to the forensic analysis stage. Trust me, the ideas are well throught through and those with opposing viewpoints have the opportunity to shoot the leading idea down.

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  • Comment Link phronesis Tuesday, 02 June 2009 15:43 posted by phronesis

    Just to throw in for the hell of it since this guy has made pointless comments to me before:
    Phirang you may or may not be right on somethings but clearly you're a jackass. So Phirang you should probably take the hint and shut the hell up. People here are either posting for productivity or reading for knowledge if you're not adding leave. Of course you could maintain your jerk off nature and stay and keeping saying nothing in which case I'm sure you will continue living your life in a world where nobody likes you, and trust me nobody likes you.

    Not to make this personal or anything ;)

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  • Comment Link dkn Tuesday, 02 June 2009 13:13 posted by dkn

    Phirang, I respectfully asked you a question with some nice hard numbers earlier, but got no response. Since then, you have continued to be rude and not at all constructive. If I disagreed with Reggie on the market or particular stocks, I would probably shoot him a note or write a comment along the lines of the following:

    "I gotta admit, I totally disagree. This is why.
    1. __
    2. __
    3. __

    On the flip side, we have these forces:
    1. __
    2. __
    3. __

    Weighing all these factors together, netting the good off the bad, it seems fair to believe __."

    Instead, you offer nothing but these snarky one liners, without any analysis. How old are you? I think it might be time to grow up a little. Hell, get emotional, get vitriolic. But you can only convince people one way or the other with actual facts and data. What ever happened to something called "respect"?

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  • Comment Link shaunsnoll Tuesday, 02 June 2009 13:03 posted by shaunsnoll

    china property market - Beijin residential vacant space increased 32% while at the SAME TIME completed apartments ALSO grew 27% yoy in the first quarter. amazing amount of supply hitting decreasing demand....

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  • Comment Link shaunsnoll Tuesday, 02 June 2009 12:57 posted by shaunsnoll

    that would be great Rumi, but the analysis is where the real value is.

    @rumi

    ag is an interesting sector and i have a whole list of ag plays i like, but i ONLY take trades when BOTH the fundamentals AND the technicals are ideal at the same time, the consequence is that i often miss good trades in order to be around for the perfect ones. i'm also happy to sit in huge % cash allocations for as long as it takes.

    MON is an interesting way to play water shortages too since ~70% of water used is in agriculture and when water becomes a critical issue ag efficiency will be one of the first places they look. MON valuation is not ideal though, some interesting ag equipment players that focus on irrigation that i like too, but i'm happy to wait till everything is perfect all at once and if that is 5 years or 2 days than i'm ok with that.

    it's my personal view that DE and CAT have too much exposure to other sectors that i my research shows will be under pressure for a very long time.

    an interesting side notes a buddy of mine who works in the wind energy industry said that DE was involved in selling financing on wind farms to farmers.

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  • Comment Link Rumi Tuesday, 02 June 2009 11:57 posted by Rumi

    /I like the idea that Reggie posted.....Phirang how about you post your top 5 picks for the next 6-12 months and we can compare results. I may even post mine if that were to occur :-)/

    If someone wants to start a thread on one of the boards, I'll add in my two cents (or five long picks, or 5 long/short picks, or whatever). I won't have the time for the next few weeks to post detailed analyses, though the picks are easy enough to do.

    Shaunsnoll: /yea, there are some interesting trades in ag too, stock to use ratios are at ridiculous levels./

    Sorry about the oil comment--I misremembered your position.
    For Ag--POT is one of the few that I'm worried about. MOS looks good, though. I don't remember my conclusions on Monsanto, etc. I was thinking about DE and CAT awhile ago as a play on the entire industry, but I think they're both **way** overvalued (look at their debt loads!!). JMO.

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  • Comment Link shaunsnoll Tuesday, 02 June 2009 10:24 posted by shaunsnoll

    Phirang, be careful, you are bordering on being outright rude now.

    and if your research is so golden, i'm happy to match trade for trade with you anytime after June 6th, just start posting up a trading journal in the subscriber boards and i'll do the same and we'll see over the next 6month to a year who does better, heck, we can even include a simple model of short/long reggies ideas too.

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  • Comment Link jarret Tuesday, 02 June 2009 10:24 posted by jarret

    I am sure given the demographics of Reggies blog if you were to post them and have the returns that Reggies has demonstrated your subscription would be paid for many times over. That said it takes a strong individual to put their picks out for everyone to pick apart.

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  • Comment Link phirang Tuesday, 02 June 2009 10:19 posted by phirang

    If I get a refund for my subscription. ;D

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