Friday, February 22, 2008

Value investors crowd around Sears

I just wanted to update a January article I wrote called "Media Hype" that included a discussion about Sears Holdings (SHLD) . (quick note - My normal focus for my blog is the insurance sector , you'll have to forgive me for digressing occasionally).

As you recall I compared the media attack on Eddie Lampert & Sears Holdings to what happened with insurer Fairfax Financial & Prem Watsa (& Berkshire Hathaway & Warren Buffett.)

Well it seems that some of the very best value investors around are loading up on Sears stock based on the latest 13Fs.

Here is my list of long term, top value investor stakes. Holdings of Tisch & Perry are as reported in a Barron's article "A Storied Name on Sale?" (Oct07) & neither of these insiders have sold stock since.

Eddie Lampert & ESL 65.6 mil
Bill Ackman & Pershing 6.1 mil
Thomas Tisch & family 4.2 mil
Richard Perry 2.7 mil
Bill Miller - Legg Mason 12.7 mil
Bruce Berkowitz - Fairholme 6.2 mil
Mohnish Pabrai funds 516 thous
Chris Davis- NY Venture fund 1.2 million
Michael Price & Whitney Tilson NM

total 97 mil

Now the total share float is around 137 million but may have been reduced through more Lampert repurchases. I would regard the 97 million shares listed as in long term hands , generally loyal to Lampert. All of these investors are very unlikely to want to sell any shares at current levels.

As of January 25, around 26 million shares of Sears were held short, 20% `of the available float. Based on my rough calculations there are really only 40 million shares the shorts can cover with & this is shrinking with Lampert's repurchases. Further, with Sears hitting new lows down in the $80s it is very likely one or more of the above value investors have materially increased their stake in Sears. This would have further reduced this 40 million share difference.

So the upshot of all this is that individuals/hedge funds shorting Sears Holdings may soon find themselves unable to buy back or cover their short positions very easily. When this situation is combined with some good news or a sense that Lampert & Sears Holdings could see an improved outlook, then potentially there could be a dramatic short squeeze in Sears stock, assuming the amount of shorts stay at their current levels.

Disclosure: I own shares of Sears Holdings (SHLD)

Disclaimer: This article should not be relied upon as investment advice and is not intended as investment advice.


#2 said...

Very interesting article, thanks. It's remarkable that such a large proportion of SHLD stock is owned by value investors. As you say these investors are likey to hold onto the stock for a while. I'm interested to know whether you know of other companies where the value investor profile has been this high or higher?

Tarn P Crowe said...

hi, it is unusual which is why it grabbed my attention, I think this group must own close to 70% of the float. I have a lot of respect for Mohnish Pabrai & Bruce Berkowitz amongst others.

USG has attracted quite a of value investors (I don't own the stock) also gurufocus have a pretty updated list of companies that value investors like ,thats worth checking out.