Edward Lampert is the founder of ESL Investments, a legendary hedge fund that has delivered annual average returns of almost 30% since 1988. He also chairs Sears Holdings Corporation which he created by masterminding the rescue and merger of Sears and Kmart.
Lampert has always been an active investor in retail, which means that acquiring a significant stake also involves taking a leadership role in its management.
Lampert targets mature and easily understandable businesses that have strong cash flows. He focuses on a company's ability to generate large amounts of cash over the long haul. In addition, his is permanently willing to implement changes in the companies in which he has invested. Lampert has significant experience investing in the retail arena.
The auto parts retailer accounts for 27% of Lampert’s highly concentrated portfolio and is his second largest holding, as well as one of his most profitable. It has gained over 870% since he began buying shares at about $30 per share, and 7.83% year to date, achieving picks of $299.60 a share.
Here are some of his best buys:
CIT Group Inc (CIT, Financial): Lampert thinks CIT is a low valuation asset leveraged to credit growth recovery in the U.S.
CIT Group Inc. operates as the holding company for CIT bank that provides commercial financing, leasing products, and other services to small and middle market businesses. Some of its products are asset based loans; secured lines of credit; operating, finance, and leveraged leases; factoring services; vendor financing; import and export financing; small business loans; acquisition and expansion financing; letters of credit/trade acceptances structuring; and debtor-in-possession/turnaround financing.
The company delivers these services and products in approximately 30 industries, including transportation, particularly aerospace and rail, manufacturing and retail across 20 countries.
Its credit metrics improved. Its charge-offs, nonaccruals and inflows into nonaccrual all were down. They continue to make progress on restructuring their debt. They repaid $3 billion of the first-lien term loan. They put in place a new $2 billion revolver with a much lower cost and they redeemed all of the 2014 maturity Series A.
Gap Inc. (GPS, Financial): Lampert believes in Gap turnaround faster than the market expects
Gap is a specialty retailer that sells casual apparel for men, women, and children under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. The company operates corporate-owned stores throughout the United States, Canada, Western Europe, and Japan as well as 151 franchise stores in the Middle East, Southeast Asia, Eastern Europe, and other parts of the world.
Gap is in good financial health. The retailer consistently generates healthy free cash flow, and management has been aggressively paying down debt and repurchasing shares. As of January 2011, the firm had no debt on its balance sheet and $1.7 billion in cash. Moreover, Management is making good use of cash by paying a modest dividend.
Gap's balance sheet is in good condition, with no long-term debt and a healthy cash balance.
Least but not last, the company's brands are widely recognized.
Seagate Technology PLC (STC): Similar to Einhorn, Lampert found STX too cheap to ignore at prices near $12.
Since 1979, Seagate has designed and manufactured hard disk drives used for storing electronic information. Hard drives are used in servers, PCs, laptops, and personal entertainment players.
As regards revenue, 65%-75% comes from original-equipment manufacturers like Hewlett-Packard, Dell, and EMC; the balance is from distributors that resell to smaller firms. Revenue is split evenly between Asia and U.S./Europe. The company is the largest producer of mission-critical enterprise drives.
Significant upside to current operating margin levels exists if Seagate can successfully lower its selling, general, and administrative and research and development costs.
Big Lots (BIG): A cheap exposure to the growing discounters segment
BIG trades with a P/E of 12 times earnings are on the low side in the discounters sector. Competitor DG is quite larger by market capitalization ($13.69B), and proficient in using debt to build new and remodel current locations. DG has 2x the P/E of BIG, which shows that the market favors DG strategy. On the last conference call, Big Lots stated that it opened 45 new stores during Q3 and closed 15 leaving them with 1445 total stores. In November they opened an additional 23 stores to bring the yearly total to 92 stores. With bruised ribs and a hitch in its giddy-up, commercial real estate is down, but not out, and the company is taking advantage. The company’s highest growth segment is furniture sales which saw double digit growth in Q3. Furniture needs floor space. Big Lots needs to open stores with large square-footage to accommodate the furniture and sell it at more attractive locations.
The Company offers planned growth in some key categories, stock repurchases, improved store locations and excess cash for great buys, keeping Big Lots competitive. Retailers are expected to turn profits quarter-to-quarter and year-round. Big Lots shows little confidence but if it surprises in the next earnings release, the market could make the valuation more closer to other discounters, such as DG.
Wells Fargo & Co (WFC, Financial) : I think the best and most conservative U.S. bank
With the purchase of Wachovia, Wells Fargo has become a nationwide bank and was catapulted into the top tier of U.S. banks.
Its diversified businesses generated record net income of $4.1 billion in the third quarter, an increase of 21% from a year ago, and a record EPS of $0.72, an increase of 20% from a year ago.
Their focus on meeting their customers' financial needs led to robust deposit growth and their strongest quarterly loan growth since the merger with Wachovia almost three years ago. They also benefited this quarter from lower expenses and continued improvement in credit quality.
Wells Fargo is a market-share leader in online banking. Online customers tend to be more profitable than traditional banking clients. With Wachovia, Wells has national scale.
Lampert has always been an active investor in retail, which means that acquiring a significant stake also involves taking a leadership role in its management.
Lampert targets mature and easily understandable businesses that have strong cash flows. He focuses on a company's ability to generate large amounts of cash over the long haul. In addition, his is permanently willing to implement changes in the companies in which he has invested. Lampert has significant experience investing in the retail arena.
The auto parts retailer accounts for 27% of Lampert’s highly concentrated portfolio and is his second largest holding, as well as one of his most profitable. It has gained over 870% since he began buying shares at about $30 per share, and 7.83% year to date, achieving picks of $299.60 a share.
Here are some of his best buys:
CIT Group Inc (CIT, Financial): Lampert thinks CIT is a low valuation asset leveraged to credit growth recovery in the U.S.
CIT Group Inc. operates as the holding company for CIT bank that provides commercial financing, leasing products, and other services to small and middle market businesses. Some of its products are asset based loans; secured lines of credit; operating, finance, and leveraged leases; factoring services; vendor financing; import and export financing; small business loans; acquisition and expansion financing; letters of credit/trade acceptances structuring; and debtor-in-possession/turnaround financing.
The company delivers these services and products in approximately 30 industries, including transportation, particularly aerospace and rail, manufacturing and retail across 20 countries.
Its credit metrics improved. Its charge-offs, nonaccruals and inflows into nonaccrual all were down. They continue to make progress on restructuring their debt. They repaid $3 billion of the first-lien term loan. They put in place a new $2 billion revolver with a much lower cost and they redeemed all of the 2014 maturity Series A.
Gap Inc. (GPS, Financial): Lampert believes in Gap turnaround faster than the market expects
Gap is a specialty retailer that sells casual apparel for men, women, and children under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. The company operates corporate-owned stores throughout the United States, Canada, Western Europe, and Japan as well as 151 franchise stores in the Middle East, Southeast Asia, Eastern Europe, and other parts of the world.
Gap is in good financial health. The retailer consistently generates healthy free cash flow, and management has been aggressively paying down debt and repurchasing shares. As of January 2011, the firm had no debt on its balance sheet and $1.7 billion in cash. Moreover, Management is making good use of cash by paying a modest dividend.
Gap's balance sheet is in good condition, with no long-term debt and a healthy cash balance.
Least but not last, the company's brands are widely recognized.
Seagate Technology PLC (STC): Similar to Einhorn, Lampert found STX too cheap to ignore at prices near $12.
Since 1979, Seagate has designed and manufactured hard disk drives used for storing electronic information. Hard drives are used in servers, PCs, laptops, and personal entertainment players.
As regards revenue, 65%-75% comes from original-equipment manufacturers like Hewlett-Packard, Dell, and EMC; the balance is from distributors that resell to smaller firms. Revenue is split evenly between Asia and U.S./Europe. The company is the largest producer of mission-critical enterprise drives.
Significant upside to current operating margin levels exists if Seagate can successfully lower its selling, general, and administrative and research and development costs.
Big Lots (BIG): A cheap exposure to the growing discounters segment
BIG trades with a P/E of 12 times earnings are on the low side in the discounters sector. Competitor DG is quite larger by market capitalization ($13.69B), and proficient in using debt to build new and remodel current locations. DG has 2x the P/E of BIG, which shows that the market favors DG strategy. On the last conference call, Big Lots stated that it opened 45 new stores during Q3 and closed 15 leaving them with 1445 total stores. In November they opened an additional 23 stores to bring the yearly total to 92 stores. With bruised ribs and a hitch in its giddy-up, commercial real estate is down, but not out, and the company is taking advantage. The company’s highest growth segment is furniture sales which saw double digit growth in Q3. Furniture needs floor space. Big Lots needs to open stores with large square-footage to accommodate the furniture and sell it at more attractive locations.
The Company offers planned growth in some key categories, stock repurchases, improved store locations and excess cash for great buys, keeping Big Lots competitive. Retailers are expected to turn profits quarter-to-quarter and year-round. Big Lots shows little confidence but if it surprises in the next earnings release, the market could make the valuation more closer to other discounters, such as DG.
Wells Fargo & Co (WFC, Financial) : I think the best and most conservative U.S. bank
With the purchase of Wachovia, Wells Fargo has become a nationwide bank and was catapulted into the top tier of U.S. banks.
Its diversified businesses generated record net income of $4.1 billion in the third quarter, an increase of 21% from a year ago, and a record EPS of $0.72, an increase of 20% from a year ago.
Their focus on meeting their customers' financial needs led to robust deposit growth and their strongest quarterly loan growth since the merger with Wachovia almost three years ago. They also benefited this quarter from lower expenses and continued improvement in credit quality.
Wells Fargo is a market-share leader in online banking. Online customers tend to be more profitable than traditional banking clients. With Wachovia, Wells has national scale.
