Where's the next Berkshire Hathaway..

Warren Buffett is the undisputed champ of investing. But here are stocks that have the potential to be the next Berkshire Hathaway...

Markel (MRL)
Leucadia National (LUK)
Otter Tail (OTTR)
Sears Holdings (SHLD)

Sears (SHLD) doing bad because of economy and ugly stores?

It's true that Sears isn't doing well but the explanation by the media of why it's doing bad is totally wrong.

Another profile of Francis Chou...Canada's top money manager.

Chou seems faintly tired of reaffirming his faith that cheap stocks always come back up in price. "This is something that happens every six or seven years," he says. "The stuff that is cheap gets cheaper, and you have no control over it. Eventually, though, the logic prevails if you buy stocks cheap." .....

His flagship Chou Associates Fund averaged an excellent 12.2% annually from its 1986 inception through Feb. 29 of this year, and its 10-year numbers beat all comers in the global equity category. Chou RRSP, with a core of Canadian content, had a 15-year average annual return of 12.5%......

Chou uses measures like sustainable free cash flow or the ability to generate earnings in cash every year, with relatively little volatility; he also seeks companies that are well managed, even if they may have run into problems. The next step is to wait for the price of an undervalued company to fall to a level where you can purchase $1 in corporate value for 50 or 60 cents. "...

Chou recently bought Sears Holdings, which he likes because it has real estate values of $70 (U.S.) or more supporting the stock (valued in the area of $101 U.S. in early April). "You also get a great investor in [hedge fund manager] Eddie Lampert to deploy capital on your behalf," says Chou. Another recent purchase is Office Depot, which traded around $12 in April and is worth north of $25 in Chou's analysis. "Almost all retailing companies are cheap,"
-Stock Article Link.

William Ackman's latest stock portfolio holdings.

Here is William Ackman's latest holdings as of Mar 31 submitted May 14. Based on Pershing Square Holdings SEC filings.


BARNES & NOBLE INC (BKS, reduced) Dec 31: 3644900 + 2895551 shares Mar 31: 2895551 + 3644900 shares (value: $200 million)

BORDERS GROUP INC (BGP, no change)
Mar 31: 5260788 + 5337092 shares (value: $62 million)

CADBURY SCHWEPPES PLC (CBY, no change)
Mar 31: 19718 + 15665 shares (value: $1.5 million)

GREENLIGHT CAPITAL RE LTD (GLRE, no change)
Mar 31: 104697 + 145208 shares (value: $4.6 million)

SEARS HLDGS CORP (SHLD, increased)
Dec 31: 3569763 + 2580237 shares
Mar 31: 2717769 + 4028799 shares (value: $688 million)

TARGET CORP (TGT, increased) Dec 31: 950390 + 6611870 shares Mar 31: 10200828 + 10200828 + 13792121 shares (value: $1.6 billion)

WENDYS INTL INC (WEN, new) Mar 31: 4275127 + 2868972 shares (value: $164 million)

Ackman said the stock, at around 29, is worth $40 and could hit 50 if the company's merger with Nelson Peltz's Triarc is a winner. Ackman said that Wendy's is in the same position as McDonald's (MCD) was in 2002, when the hamburger giant turned around its operations, prompting a near-tripling in its stock price. "This is the same story as McDonald's all over again," Ackman said -Stock Article Link

Activist investor's watch Link

Eddie Lampert's lastest investing portfolio

Billionaire investor and Sears Holdings Corp. Chairman Edward Lampert acquired shares of two homebuilders and a mortgage lender during the first quarter and added a 6-million-share stake in student lender SLM Corp., according to a quarterly regulatory filing.

As of Mar 31 issued May 14, 2008

comprehensive quarterly comparison

Acxiom (ACXM, no change)
Mar 31: 3,293,989 shares
Value: $39 million

AutoNation (AN, increased)
Dec 31: 58,526,358
Mar 31: 66,624,115
Value: $997 million

AutoZone (AZO, no change)
Mar 31: 22,006,790
Vale: $2.5 billion

CIT Group (CIT, new position)
Mar 31: 3,925,000
Value: $46 million

Citigroup Inc (C, no change)
Mar 31: 19,083,800
Value: $408 million

Centex Corp (CTX, new position)
Mar 31: 747,500
Value: $18 million

Home Depot (HD, increased)
Dec 31:16,685,679
Mar 31: 22,762,646
Value: $636 million

PHH Corp (PHH, new position)
Mar 31: 1,430,068
Value: $25 million

Sears Holdings (SHLD, no change)
Dec 31: 65,639,184
Value: $6.7 billion

SLM Corp (SLM, new position)
Mar 31: 6,018,100
Value: $121 million

Eddie Lampert Video to the Shareholder Annual Meeting

"Highlights are

- Lampert doesn't see a turnaround so far in consumer economy and doesn't foresee one this year.

- He hasn't seen a benefit as yet from interest rate cuts but does think that there will be a benefit.

- He thinks the market is flooded with too many stores being opened by competitors.

- Brands seem to be the new bet for Sears--are brands/merchandising replacing Lampert's emphasis on the underlying real estate play?

- There is a fundamental shift in how consumers shop. Part of that is due to increasingly specialized brick and mortar as well as online retailers.

"-Stock Article Link

Eddie Lampert's message to Sears shareholders (SHLD)

Eddie Lampert answers a lot of questions that shareholders are thinking.

"How would Kmart compete against the more profitable and better capitalized Wal-Mart and Target? How would Sears compete with Home Depot and Lowe’s as well as Best Buy, Kohl’s and JC Penney? Why would we believe that we could do something that so many others had tried with mixed results?....

it is not clear that heavy expenditures of capital guarantee either short or long term success. Like any investment of capital, the return on that capital over time will determine its wisdom....

Before the merger, Kmart earned almost $1 billion in EBITDA and had approximately 100 million fully diluted shares outstanding while the combined company earned over $2.5 billion of Adjusted EBITDA in 2007 and today has approximately 132 million fully diluted shares outstanding and $1.6 billion of cash, after having deployed roughly $9 billion of cash during the past three years. We are proud of the progress we’ve made but do not believe we have played up to our full potential yet...

Finally, our cash flow generation remained strong as we generated $1.6 billion of operating cash flow in 2007, which exceeds the $1.4 billion generated last year. We ended the year with $1.6 billion in cash, as we deployed $4.3 billion in 2007 as follows:

• $2.9 billion for share repurchases;
• $600 million for net reductions of debt;
• $580 million for capital expenditure reinvestments in our business; and
• $220 million contributed to our legacy pension obligations.

Some have wondered why we haven’t invested more money in our stores. This is a legitimate question. In theory, a company can always invest more money in its operations, but, when we make an investment we expect to earn an appropriate return. Since we have invested a significant amount of capital in hundreds of stores, we have some good data to work with to better understand what works and what does not. In some cases, our investments have led to higher earnings in the stores in which we invested and we continue to make investments like those today. In other cases, however, the investment has not led to acceptably improved performance. ...

Let’s look at a hypothetical example. Imagine that we invested $200 million to remodel or improve 100 stores, or $2 million per store. If the store profitability after that investment is exactly the same as before, then the $200 million investment generates 0% in return. By simply keeping our money in cash, we could have earned anywhere from 3-5% over the past several years, which is better than the 0% return in this case. The related question then becomes: why can’t you find ways to invest in your stores that generate an acceptable return? That’s exactly the problem we have been working to solve and we will continue to work until we solve it.

Pressing this point even further, some might ask, if you can’t justify investing in your stores, then how are you going to grow your business? To be clear, we are not saying that we can’t justify investing in our stores. The issue is more about the size and type of investment as well as the timing and sequencing of an investment. There are many things that a retailer can do to improve its business without the significant amounts of capital that a major remodel would require. Improving the assortment of products and services, mix of inventory, visual presentation, recruitment and training of employees, and marketing and communications to customers are all ways to generate improved performance....

Over the past three years, we have contributed approximately $800 million pre-tax to the Sears and Kmart pension plans and we currently expect to contribute several hundred million more in total over the next few years. However, we (along with the rating agencies) view this pension cost as more akin to a repayment of debt incurred years ago than an ongoing cost....."


Article Link: http://www.searsholdings.com/invest/

More Eddie Lampert Bashing with Sears Holdings

The majority of analysts are totally negative with Sears (SHLD). Just read the headlines " Sears Is No Berkshire Hathaway, Just A Troubled Retailer". With estimates of $5.13 and $5.96 per fully diluted share for the year, if you give it a reasonable future p/e of 15-20, best case scenario ($6 x 20 = $120 stock for the year 2008, currently trading at $90.)

With declining same-store sales, Eddie Lampert is still buying stock, hand over fist. During the ten weeks ended January 11, 2008, SHLD repurchased 4.9 million common shares at a total cost of $513 million (or $105.46 per share) under the share repurchase program. As of January 11, 2008, remaining authorization to repurchase $223 million of common shares under the previously approved programs. I have a feeling he'll use all that up too.

If I liked it at $150, I like it now even more at $90 and it will probably go lower. There's only so much I can put in a stock (10-20% of portfolio). Analysts are rarely right so it's buy and hold and go against the herd.

Eddie Lampert bashing with the stake in Restoration Hardware

Restoring Sales at Sears?

Investors sour on Sears stake in Restoration Hardware

This one leaves me scratching my head. The fundamentals of Restoration Hardware(RSTO) are not good. It operates over 103 retail stores and 8 outlet stores in 30 states, the District of Columbia, and Canada. I guess he's branching his store within a store concept a la Land's End and perhaps sticking with high end versus competing on price.

Time for me to visit the store.

http://www.restorationhardware.com

Will Eddie Lampert Turnaround Sears?

Says one New York hedgie: "I think that Sears will prove the ultimate trap for Lampert and his investors, and the Eddie cult will come to an ugly end."

...the retailer's real estate has considerable value that is not reflected in the stock. Add up this real estate, valuable brands like Kenmore and Craftsman, and Sears' huge appliance and home-remodeling business, and the company could have a liquidation value of more than $300 a share..

...Such turnarounds take time. As Dreher notes, retail veteran Allen Questrom took five years to revive the moribund Penney, from 2000 to 2004....

-Stock Article Link

Clearly, Sears Holdings is not the next Berkshire Hathaway. If it was, Eddie Lampert would have bought other businesses by now. His efforts are all focused on the turnaround.

Hedge fund activist William Ackman is at it again with Sears

William Ackman is an aggressive activist value investor who heads Pershing Square Capital Management, a $1.6+ billion hedge fund. Ackman takes large long positions in a concentrated portfolio of companies, then often pressures management to extract value for shareholders. In 1993, he launched Gotham Partners, eventually growing the hedge fund to over $300 million in assets. Gotham imploded in 2002 amid a series of lawsuits related to a failed merger between one of the firm's holdings.

Ackman re-emerged in late 2003 with Pershing Square, whose original investors included a subsidiary of Leucadia National Corp. (NYSE: LUK). Over the past two-plus years, Ackman has agitated for change at Wendy's International Inc. (NYSE: WEN) and McDonald's Corp. (NYSE: MCD), helping to force the former to spin off its Tim Hortons Inc. (NYSE: THI) donut chain, and the latter to buy back $1 billion in stock.

In November 2006, Ackman made news when he disclosed that Pershing Square had taken a more than 10% stake in Borders Group Inc. (NYSE: BGP - News), while simultaneously increasing its stake to over 5% in rival Barnes & Noble Inc. (NYSE: BKS - News). In December 2006, he won a battle against Eddie Lampert over Sears Holdings Corporation's (Nasdaq: SHLD) proposed acquisition of Sears Canada. SHLD was able to increase its stake in Sears Canada to 70%, but a minority shareholder group led by Pershing Square scored court and regulatory victories, prohibiting an actual takeover.

Recently Ackman bought 5 million shares in Sears. He previously owned more than 1.5 million shares of Sears as recently as March 2006, suggesting that he was attracted back to the stock this fall by the fallen share price.

William Ackman's Portfolio Holdings.

It's time to buy Eddie Lampert's Sears Holdings (SHLD)

"Sears Holdings Corp. warned investors Tuesday that its second-quarter profit could plunge to almost half that of last year as the parent of Sears Holdings and Kmart stores struggles to stay "relevant" to consumers.

Shares of Sears Holdings (SHLD) tumbled 10% to finish the session at $154.21 - wiping out all gains made since mid September. " -Sears Holdings Warns As It Struggles To Stay 'relevant'

I would start buying a small position here. Kmart was brought out from bankruptcy and merged with Sears which was all orchestrated by investing guru Eddie Lampert. He's money in the bank in my book.

The current eps is $9.87 which gives it a current earnings yield of 6.41%. If you take the current eps and compound it by 9% (analysts predict 9-10%) for 5 years and multiply it by a conservative future p/e of 15, that only gives you a future compounded rate of return of 8% for 5 years. But if you consider the Eddie Lampert factor, he has averaged annual gains of 30% a yr since 1988 with his hedge fund, ESL Investments. The growth rate estimate may be way to low.....

Sears Holdings could be the next Berkshire Hathaway where all the cash generated will be used to buy unrelated investments. If you compound the growth rate by 15%, that's a compounded rate of 14%, if it's 20%, that's compounded rate is 19% return. So you are looking at compounding rate of return ranging from 8% to 19%.

I was reading the annual report and SHLD has been buying the stock, hand over fist, about $604 million at an average price of $166.03. And of course, they have announced another $1 billion dollar buyback. If money conscious Eddie is still buying, so am I. Also Richard C. Perry bought 33 thousand shares back in Oct and bought another 250 thousand on July 1, before the stock tumble.

1-Jul-07

*250,000

SHLD

Acquisition (Non Open Market)

10-Oct-06	PERRY RICHARD C Director	13,000	Indirect	Purchase at $168.95 per share.	$2,196,350
9-Oct-06	PERRY RICHARD C Director	20,000	Indirect	Purchase at $165.03 per share.	$3,300,600

Jim Cramer's ActionAlertsPlus Portfolio recent buys

Some of the more recent buys on Jim Cramer's ActionAlertsPlus portfolio is Citigroup (C), Fannie Mae (FNM), & Corning (GLW).

Mad Money recap for June 4, 2007

His third largest position is Sears Holdings (SHLD) and here's story about it's buyback.

Cramer: Why Sears Keeps on Rising

Sears stock falls! Should I be worried?

Shares of retailer Sears(SHLD) fell nearly 4 percent Friday ($179.76) after the company reported weaker-than-expected sales and forecast first-quarter profit below analyst estimates.

Sales fell 4.7 percent at its Kmart stores open at least a year in the first 12 weeks of the 13-week fiscal first quarter, with same-store sales down 2.4 percent at its U.S. Sears stores.

Should I be worried? Not! Currently it has $3.6 billion in cash flow, $2 billion in cash. I wish it went lower so I can buy more.

Responding to a shareholder question about his plans for the company's more than $2 billion in cash, Lampert said there are "a variety of options to deploy that."

"The opportunities for us to allocate capital are very significant, and we have a lot of choices," Lampert added. "But we don't go into this with a predetermined mind-set."

Aside from possible acquisitions/investments. Eddie is also committed to investing more money into Sears retail business.

"Investing in the core retail business to the extent that it provides decent returns -- I would say that's a priority," he told a shareholder.

Lampert quoted Buffett ("It doesn't count to predict rain; what counts is building the ark.")

Sears' Lampert ready to put money to work

Top 25 hedge fund managers avg $570 million a yr.

2006 earnings	Manager	Hedge fund firm
$1.7 billion	James Simons	Renaissance Technologies
$1.4 billion	Kenneth Griffin	Citadel Investment Group
$1.3 billion	Edward Lampert	ESL Investments
$950 million	George Soros	Soros Fund Management
$900 million	Steven Cohen	SAC Capital Advisors
$715 million	Bruce Kovner	Caxton Associates
$690 million	Paul Tudor Jones II	Tudor Investment Corp.
$675 million	Timothy Barakett	Atticus Capital
$670 million	David Tepper	Appaloosa Management
$600 million	Carl Icahn	Icahn Partners

-Stock Article Link

Fortunately I have Sears Holding (SHLD) and as a shareholder, I didn't have to pay Eddie Lampert $1 billion+. It's the next Berkshire Hathaway and I will hold it for a very long time.

Eddie Lampert reports Sears quarter (SHLD)

Eddie did it again! Even with same store sales down, earnings managed to beat the street, $820 million, or $5.33 a share, compared with last year's profit of $648 million, or $4.03 a share.

Full Article Link

Here is a Link to the SEC File 8K to read Eddie Lampert's comments.

"As we look ahead, I want there to be no doubt about one thing: It is certainly our intention to grow Sears Holdings. Some commentators have asserted that we want to shrink the Company, but that is simply not so. No great company would aspire to become smaller, and we certainly do not. But before embarking on a growth plan, it is critical to provide a sound base from which to grow. To this end, we have set out to improve the profitability of our business model. Our objective is disciplined growth. We do not want to grow simply for the sake of becoming bigger. Rather, our aim is to become more profitable, and as such we need to ensure that any revenue growth occurs at an appropriate level of profitability."

Instead of stock options, performance is based on EBITDA.

"At Sears Holdings, we have linked a very significant part of our executives’ variable compensation to the EBITDA of Sears Holdings or one of its businesses, adjusted for certain items that are not within the control of our associates. We consider EBITDA a superior measure of operational performance, as it provides a clearer picture of operating results and cash flows by eliminating expenses that are not reflective of underlying business performance. We have both a one-year EBITDA goal used for annual bonuses and a longer-term goal that is generally based on EBITDA performance that we have used for our Long Term Incentive Plans (LTIPs). Unlike some companies, which set targets at levels that are difficult to miss, we set targets that are achievable but require us to perform—it is important to set goals that challenge and stretch us."

Sears has a strict spending discipline.

"As we have said before, we do not want to spend $1 too much or $50,000 too little on our stores. Unless we believe we will receive an adequate return on investment, we will not spend money on capital expenditures to build new stores or upgrade our existing base simply because our competitors do. If share repurchases or acquisitions appear to be more productive, then we will allocate capital to those options appropriately. We will seek superior returns, wherever they may be found."

The Best Retail Stock for 2007: Sears Holdings

The Best Retail Stock for 2007: Sears Holdings - Fool's Article Link

"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."

Sears Triples 3Q Profit on Investments

"More than half its $196 million profit came from $101 million in investment income." Amazing! Way to go Eddie Lampert!

Article Link