Wednesday, June 08, 2005

Bill Cara: Same old Sears, Wed., June 8, 2005, 8:30 AM

Bill is as down on Sears as Jim Cramer is up. The data support both points of view. The stock rose too much on speculation, however, that does not mean it does not have good long-term prospects.

Bill rails against the idea of blindly following Eddie Lampert. The statement seems reasonable but then some of my more successful investments were the result of playing follow the leader. For example, my family loaded up on NXTL in October of 2002 largely because Bill Miller was buying the stock--we are up 800%! If I were allowed to copy all of Bill's trades-all or none-I would follow him blindly. Put another way, successful bettors often bet on the jockey not on the horse. He is the only mutual fund manager to beat the S&P 14 years in a row. He beat the S&P by a very wide margin.

Again, Sears Holdings ran up too far and too fast on speculation--partly on the pumping of Mr. Cramer, however its business plan is rational. One important key is Mr. Lampert's discipline to earn profits not just increase sales. As reported by Chad at The Peridot Capitalist site, AutoZone (Lambert owns something like 25%) has increased profits and higher stock prices while enjoying only modest sales growth. The old saw about the fellow losing money on each sale and trying to make it up on volume has been the retail reality far too often.

The combo of Sears and K-Mart gives Eddie the opportunity to pick and choose profitable locations. He sheds the locations that do not fit and turns a profit on the real estate. Same store sales is the metric for aggressive CEO's who are trying to build a kingdom. Eddie is building a kingdom but not the largest non-profitable retail business.

Retailers have to play a top game of "tit for tat". I have talked about "tit for tat" in other blogs and will not bore you with the details again but the central point is to not ever try to sell at the lowest price. One should sell at competitive prices if necessary! If you have the most convenient location, sell for a higher price!

Given time to segment markets, I believe Sears Holdings will be successful. My family does not own the stock but we are watching it and may find an attractive entry price at a time when we have funds available.

This morning we are enjoying moves in stocks like TXN, UNH, TIVO, INTC, DAL, MOT, ADBE and more. If it looks like a BULL, runs like a Bull, and snorts like a Bull it must be a Bull. The most recent talk is that it is a BULL rally in a secular Big Bear market. If this is true the Bear has been asleep for a long time. Hibernate Bear-hibernate.