Bat got your tongue? We dare you to keep reading our special series on the World’s Scariest Stocks.
It's not just things that go bump in the night that you need to be afraid of, but also the monsters lurking in your portfolio that can give you the shakes. Just ask investors in Sears Holdings
George Romero's zombie hit Dawn of the Dead showed the slack-jawed undead attracted to a mall, perhaps in some primal remembrance of how their lives used to be. That's how the once-venerable retailer must be feeling these days. At a time when Wal-Mart Stores
For a discount retailer, that has to be especially painful -- but then again, zombies don't feel pain.
Lampert the Reanimator
Yet painful it has been. Like a modern-day Dr. Frankenstein, Sears Holdings Chairman Eddie Lampert has been trying to cobble together a living being, one rotten corpse at a time, much as Warren Buffett did with ailing textile mill Berkshire Hathaway
It's been a long time since the Oracle wannabe displayed any of his "Lampert magic," though. His use of total return swaps has seemingly failed more times than it has worked in Sears Holdings' favor, and the idea that the retailer may have been some kind of asset play with valuable real estate in prime locations has faltered as the commercial market collapsed and credit remains in a deep freeze.
Bring out your dead!
Too often, it seems Lampert has resorted to using share buybacks to prop up earnings, both at Sears Holdings and at his other fiefdom, AutoZone. In both cases, hard-earned capital was squandered on buying up overpriced shares instead of investing in the stores. Over the past year, Sears Holdings has spent more than $1.35 billion buying back some 11.5 million shares, for an average cost of $117 each. Today, the stock trades around $50 a share. The vaunted cash balances that once exceeded $4.4 billion now register at just over $1.5 billion.
Malls have become ghost towns as consumers strive to stretch their dollars as far as they can. When you can save even more money by shopping at Wal-Mart or Costco
At 27 times next year's earnings, Sears Holdings trades at three times the valuation of midmarket retailers such as Kohl's
A place for ghost stories
Do you agree with me that buying Sears Holdings stock is a scary thought and that the aging retailer is the World's Scariest Stock? If so, join with me over at the investor-intelligence community Motley Fool CAPS and select Sears Holdings to underperform the market. You can lay out your creepy tale and let us know you find there are more tricks than treats in this stock. Then come back in a week to find out who has won the dubious distinction of being the World's Scariest Stock.
Wal-Mart, Sears, and Berkshire Hathaway are Motley Fool Inside Value recommendations. Costco and Berkshire Hathaway are Stock Advisor picks. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days.
Fool contributor Rich Duprey owns shares of Wal-Mart but has no financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.