The holding company was formed in 2004 when Kmart, freshly listed after coming out of bankruptcy, announced that it was going to purchase Sears, Roebuck and Co. The man to orchestrate the $11 billion deal was Kmart's chairman, Eddie Lampert, a savvy investor who managed roughly $15 billion in assets through his hedge fund, ESL Investments. Though there was a lot of skepticism at the time of the announcement, shareholders have been rewarded, as the stock has nearly doubled since the end of 2004.
Shedding light on Lampert
In 1984, at the age of 22, Edward S. Lampert interned at finance powerhouse Goldman Sachs, eventually moving to the company's risk arbitrage department a year later. In 1988, preferring to see what he could do on his own, he left Goldman and started his own money management firm, ESL Investments. From its humble beginnings, ESL compiled an impressive record, with some citing returns of nearly 30% per year over the life of the fund.
Lampert's style of taking highly concentrated positions in highly-researched value-oriented investments has drawn many comparisons between him and Warren Buffett. Buffett's firm, Berkshire Hathaway
Sears in the Lampert era
So the question is how this short history of Eddie Lampert, Kmart, and Sears leads to a good investment. Though operations like Target
On the business side, there is also hope. As sales have been declining, cost-conscious management has led to higher gross margins and declining overhead expenses, making the company more profitable. Continuing problems at Wal-Mart, the world's largest retailer, have been good news for Target and others, but could also present a refocused Sears/Kmart with an opportunity to lure former Wal-Mart shoppers. The company also still has a nice set of brands to leverage, including Craftsman, Kenmore, Joe Boxer, Lands' End, and Martha Stewart Everyday.
Is Sears Holdings going to be an eight-bagger over the next few years? Probably not -- it's already a $28 billion company. Well-chosen investments by Eddie and even a modest turnaround in the actual retail business, though, could mean market-trouncing returns in 2007. So do you think Eddie has what it takes? Let the other 20,000 players in The Motley Fool's CAPS service know! Think I'm wrong and Sears is dead money? Well, hop on CAPS and get yourself heard. CAPS is full of great investing insight and is absolutely free to play.
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Fool contributor Matt Koppenheffer is ranked 2,398 out of 20,130 on CAPS, but hasn't benefited much from his position in Sears Holdings -- yet. He also owns shares of Goldman Sachs, but does not own shares of any of the other companies mentioned. The Fool's disclosure policy never needs a hedge.