Monday, November 19, 2007

ESL Confounds the Mind

Eddie Lampert's newest buys have been disclosed in the past seven days. For the year, all six of his positions have taken losses. Good thing he a five year tie-up for his hedge fund.

New Positions: HD, C
  • Both have massive market caps
  • Both are in terrible and still failing sectors
  • Both have strong dividends but they are at risk
  • ESL is nowhere near controlling stakes
SHLD
  • Since peaking at $190; it has lower lows and lower highs.
  • Established a 14% position in Restoration Hardware (RSTO)
  • Buybacks continue
AZO, AN
  • Both stocks are suffering from sector pressures (retail)
  • Both continue buybacks
  • Auto part providers can act as a recession resistant sector
Look for terrible news in the retail sector and buy AZO, AN, or SHLD. Wait and see what ESL is doing with its newer positions. They may have bit off more that they can chew.

Market Notes

SBUX - Starbucks
  • Commodity prices squeeze margins
  • Increased competition from MCD
  • Stock price dropped all year. Now selling at Aug. 2005 levels
  • Received several analyst downgrades
  • Plans for first ever TV ad campaign revealed
  • Fast Money warns of Value Trap
  • What effect does a weak dollar have?
  • Look for buying in the mid to late teens
KMX - CarMax
  • This is Buffett's only new pick
  • Is this a defensive pick? What is oil's effect?
  • Markel has been a long-term holder
  • Buffett buys at price close to $20.50
  • Study released shows that individuals can beat market by copying Buffett
HD - Home Depot
  • Eddie Lampert initiates 16.6 million share position
  • These sectors (housing, retail) are in a tail spin
  • 3% Yield $0.90 Rate
  • Halting massive $22 billion buyback ($56 billion market cap)
  • Compare that to Lampert's biggest success - SHLD $17.2 billion market cap (post-KMart)
ROK - Rockwell Automation (aerospace)
  • Cleared to buyback $2 billion worth of stock
  • Market cap - $10.2 billion
  • ROE = 31.1; ROE above 15 for the past 5 years
  • Profit margins increasing for the past 7 years
  • What are the characteristics of an aerospace cycle?

The Year of Altria (MO)

If you had purchased Altria at the beginning of 2007, you could have experienced an interesting journey of value creation beginning with the spin-off of Kraft.

MO
  • Spins-off KFT
  • Announces split of Philip Morris Domestic and International
  • Sells NYC headquarters for $400+ Million Profit
  • Jan dividend - $0.65
  • April dividend - $0.68
  • July dividend - $0.69
  • October dividend - $0.75
  • DJIA Component
  • Return: $74.00 - $66.70 = $7.30 Gain
KFT
  • Sells Post brands - Ralcorp spun-off shares to be awarded soon
  • Investors: Buffett, Peltz, Carlos Slim, Yale Endowment
  • Plans to sell more slow-growth brands
  • March Dividend - $0.25
  • June Dividend - $0.25
  • September Dividend - $0.27
  • Return: $32.30 - $35.00 =$2.70 Loss