Come see the hedge fund side of Sears

In the midst of all the excitement over the Fortress Investment Group IPO, a couple people have noted that the real winner of the IPO may be none other than Sears Holdings.
Sears is no longer just a stodgy retailer selling linens and Craftsman tools. It’s basically behaving if not as a hedge fund, then as a investment fund. Edward Lampert the hedge fund prodigy behind ESL Investments has been running the show at Sears since their 2004 merger with ESL controlled Kmart. You can’t do a Google search on Lampert without a fistful of results all tipping him to become the next Buffet.
Lampert gained control of Kmart while they were in bankruptcy and has since been busy using their cash flow to make investments in other companies. Sears is throwing off some serious cash right now, will be interesting to see what they do with it.
Sears Holdings ‘Message from the Chairman’ for the 2005/2006 year had little to say around what Sears would do with it’s excess cash, beyond a terse statement that said:

We are not focused on sales or sales growth as an end in itself. Nor will we spend capital on stores simply because we have the capital available to invest or because everyone else does it.

Sears Holdings has been doing some repurchasing of shares as well, though Lampert said this in regards to how he intends to grow per-share value:

At the present time, I believe that the most significant lever for creating per-share value is in improving the operations of our core business.

Which raises the question, what does Sears Holding consider it’s core business – is it still in retail operations?
Does any of this make Sears an attractive investment? At the current price, with the current level of hype it’s tempting to stand back and watch for a while to see what it does. Hopefully I don’t end up just watching it climb into the stratosphere.
Update 3/12/2007 – Looks like the Washington Post has been thinking about the same things I have – their article here covers the same territory as this post.

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