Sears Holdings Corp. (SHLD, Financial), a major holding of Bruce Berkowitz (Trades, Portfolio), traded at an intraday low of 83 cents on Friday, approximately 17.8% lower than its previous close of $1.01.
Remember, buy only good companies
Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) underscored the importance of investing in companies with predictable earnings, strong and expanding profit margins and fair valuations. Companies that are making the Undervalued Predictable and Buffett-Munger screeners include Gentex Corp. (GNTX, Financial), Ross Stores Inc. (ROST, Financial) and Ulta Beauty Inc. (ULTA, Financial).
Sears struggles to stay afloat
Sears CEO Edward Lampert (Trades, Portfolio) said on Sept. 13 that while management is “encouraged” by the improved comparable stores sales trend during the quarter ending Aug. 4, the company still has not returned to profitability. GuruFocus ranks Sears’ profitability 1 out of 10 on several severe warning signs, which include declining revenues, contracting gross margins and increasing long-term debt.
Sears’ operating margin of -11.53%, which underperforms approximately 90% of global competitors, has increased 33.8% in the red per year on average over the last five years. Such margins suggest declining profitability year over year.
Gurus have held onto Sears “to the bitter end”
Although Berkowitz has trimmed his holding over the last several quarters, the former Sears director still owns 14,061,947 shares as of Aug. 28. Shares of Sears traded around $1.11 that day.
Other gurus that are still clinging onto Sears include Berkowitz’s Fairholme Fund (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Francis Chou (Trades, Portfolio).
Disclosure: As of this writing, the author is long GNTX, ROST and ULTA. He has no position in Sears or Berkshire Hathaway.
