Like Warren Buffett, founder of hedge fund ESL Investments, Edward Lampert, goes for easily understandable businesses that have solid cash flows. But unlike Buffett, Lampert spends less time focusing on management, given that he would rather implement changes in the companies himself, by working with, or shaking up management teams (from Lampert’s GuruFolio report).
This approach is especially prevalent in several of his investments, which are majority retail. He specializes in acquiring stakes in beaten-down retailers, particularly one widely popular one, Sears Holdings (NASDAQ:SHLD), a company where he has recently secured a CEO position.
Having been chairman since 2005, Lampert has helped Sears reduce costs, through closing 171 of its stores in the US and cutting employment by 12 percent, Bloomberg reported. Throughout the years, Sears has been a scrutinized spectacle due to its declining revenue and sales.
New and used vehicle retailer AutoNation (NYSE:AN) on the other hand, which is Lampert’s second largest holding, has lately flourished as a company. In December, the company reported a 15 percent increase in total units sold, comparable to year over year data. Lampert has served as a director for Autonation.
Although Lampert’s critics question his ability to serve as CEO for a retail company, Lampert is a continuous long-term investor in retail sector, and has worked closely with various management teams to implement improvements – which could be enough to defy the doubts and get the job done.
When it came to investing, Lampert once said in a CNBC interview:
“You have to have a point of view, you have to have a belief that something's possible. And that you can see something that other people don't. And a lot of times, when you see something that other people don't, there's nothing there. But there are times where there are things there. And the question is 'is it worth it to invest your money and is it worth it to invest your time?' "
Lampert maintains 10 stocks in his portfolio, 7 of which are retail stocks. His largest holdings, besides Sears Holdings and AutoNation are Gap (NYSE:GPS), Capital One (COF), AutoZone (NYSE:AZO) and Genworth Financial (GNW).
The P/E ratio is a helpful figure to valuate retail companies. Among Lampert’s 7 retail stocks, below are three that have the lowest P/E ratios in his portfolio.
Big Lots Inc. (NYSE:BIG)
Big Lots has a P/E ratio of 10.5.
A large broadline closeout retailer, Big Lots operates 1,482 stores in 48 states in the US and 79 of its affiliate store, Liquidation World and LW in Canada. Its products include consumables, seasonal items, furniture, houseware, toys, electronics, home décor, tools and gifts.
Lampert first acquired the stock in the first quarter of 2011, purchasing over 1.3 million shares at an average price of $37.78. Three years later, the stock has lost about 5.12 percent of its market value.
BIG data by GuruFocus.com
Lampert’s holding represents 2.4 percent of the company’s outstanding shares. He has about 1.4 million shares of the company.
Currently, it trades for $28.75, up 2.06 percent today. It has an 8 in Financial Strength and 7 in Profitability and Growth on GuruFocus.
To view Big Lots’ financial data, visit 10-Year Financials.
AutoZone Inc. (NYSE:AZO)
AutoZone has a P/E ratio of 13.9.
AutoZone is a retailer and distributor of automotive replacement parts and accessories. It trades at $344.95, and is ranked four stars in Business Predictability. In three years its stock gained 122.68 percent in market value.
AZO data by GuruFocus.com
Currently, Lampert owns 197,052 shares of the company. His holding represents 1.3 percent of his portfolio. Other Gurus who hold the stock include Steve Mandel, Jim Simons and Murray Stahl.
To view Auto Zone’s financial data, visit 10-Year Financials.
Gap Inc. (NYSE:GPS)
Gap has a P/E ratio of 15.3.
A global retailer offering clothing, accessories and personal care products for men, women, children and babies, Gap is currently trading at $31.39.
In three years, Gap has gained 53.78 percent in market value.
GPS data by GuruFocus.com
Lampert acquired the stock in the fourth quarter of 2010, starting off with more than 2.8 million shares at an average price of $20.30. Over the years, he grew his holding as high as 36 million shares. His last several transactions in the company, however, were all reductions. In the third quarter, he eliminated 33.79 percent of his stake. He remains with 19.3 million shares.
Gap represents 12.4 percent of his portfolio. Other Gurus who hold the stock include Steve Mandel, Steven Cohen and Ken Heebner.
To view Gap’s financial data, visit 10-Year Financials.
To view the full list, visit Edward Lampert’s low P/E companies.
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