Hedge fund manager Eddie Lampert is best known for his investment and management of Sears Holdings (NYSE: SHLD). Though his investment in the company has yielded substantial gains for the fund manager, many other investors think the job wasn't handled properly. Aside from Sears, Lampert's fund, ESL Investments, has plenty of interesting positions, from retail to technology. Let's take a look at the most recent reported holdings for the chairman of Sears and the value investing extraordinaire.
ESL Investments is the fund that took control of companies such as Sears and AutoNation (NYSE:AN) in attempt to turn around their eroding fundamentals and dying businesses. Lampert enacted change by amassing large amounts of stock and eventually placing himself on the companies' boards. Lampert is a value investor with some similar criteria to that of Warren Buffett. He likes simple business models that generate lots of free cash and look to do so for the foreseeable future. Where he differs with the Oracle of Omaha, though, is on management. Where Buffett would turn away a cheap business with a lousy management team, Lampert would gladly invest and then take action to change or influence the current executives.
As of RBS Partners' (the parent company behind ESL) latest 13-F filing, it appears that Lampert is, as usual, heavily consolidated in just 10 substantial positions. A few of these are the predictable, gigantic holdings of Sears, AutoNation, and an almost closed out position in AutoZone (NYSE:AZO). Those three stocks all together make up more than $4 billion, or more than 80%, of the entire portfolio.
The third biggest position in the fund is in clothing retailer Gap (NYSE:GPS). Over the past year, Gap has been a great comeback story. In its recent earnings report, the retailer made tremendous gains with $0.63 per share compared with $0.38 the year before. The growth was driven by higher sales, improved margins, and a lower share count. Same-store sales for Gap were up 7% year over year, followed by 6% for subsidiary Banana Republic and 9% for Old Navy. Lampert has steadily been reducing his Gap holdings, while still maintaining nearly 20 million shares. He originally purchased shares in the early months of 2011 -- amassing a nearly 6% stake in the company. Since February of last year, the stock is up more than 72%.
Time to buy big?
One of Lampert's recently added positions is in wholesale retailer Big Lots (NYSE:BIG), a company that's been on the radar for many value investors, particularly those with a love for retail. Since 2008, the company has steadily increased net sales by nearly 12%. Big Lots is recently off its 52-week low and trades at a one-year forward earnings ratio of 8.6. The company buys unwanted inventory from competitors and sells it at deep discounts in its stores. The business model is great, but it's facing pressure from recent success stories such as Dollar General (NYSE:DG) and, of course, Wal Mart (NYSE:WMT). According to GuruFocus, the estimated average price paid for Lampert's most recent Big Lots shopping spree was $36.37. Today, shares are trading only a sliver above $27, giving prospective investors a much more attractive entry point than the hedge fund manager received.
Big Lots faces negative market sentiment from much of Wall Street, and investors will no doubt quickly devour the company's upcoming earnings report, which is set to come out on Nov. 29. Last quarter, the company came in shy of expectations and contributed to the bargain pricing of its stock. But regardless of short-term trends, the company's fundamentals appear strong enough to weather any continuing headwinds. As of last quarter, ended in late July, the company had $62 million in cash. Overall, current assets cover total liabilities -- a sign of solid balance sheet strength. In April, the company reported $125 million in free cash flow, though that figure had swung to a loss of nearly $37 million by July.
As for Lampert, he appears to see upside in the future of the wholesaler, as his fund owns nearly a million and half shares worth some $38.7 million. When the fund's next 13-F filing comes out, investors should take a look and see whether Lampert again loads up on the now even-cheaper shares.
In all, Lampert's most recent portfolio looks like that of a typical value investor's: consolidated positions, predictable and easy business models, and, most importantly, cheap prices.
Fool contributor Michael B. Lewis and The Motley Fool have no positions in the stocks mentioned above. Motley Fool newsletter services recommend Gap. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.