Sears money spigot drying up... Toll Bros building in NYC... Apple stores in Target... California's millionaires are leaving...
Sears suffered a blow this morning when finance company CIT said it would no longer finance Sears suppliers awaiting payment from the troubled retailer. CIT is the biggest company that finances receivables, a practice called "factoring." It pays Sears' suppliers upfront, while they await payment from Sears. According to the Wall Street Journal, other factoring companies are still doing business with Sears suppliers...
But this won't be the last finance company to cut Sears off. As the largest factoring company, CIT's decisions will cause other, smaller companies to wonder how they can afford to take risks that the biggest company can't afford to take.
Sears Chairman Eddie Lampert is the founder and head of ESL Investments. He's one of the most-watched investment managers of the last decade. At first, his headline-making deal to combine Sears and Kmart looked great. Lampert made money buying Kmart bonds while it was in bankruptcy, then took control of Kmart out of bankruptcy. He announced Kmart's intention to buy Sears in late 2004, and named the combined company Sears Holdings. From late 2004 to its 2007 peak, the market loved the new company, pushing the stock up more than 400%. But unfortunately, his potentially wonderful financial guidance has been lost on Sears. Its share price is down more than 80% from its 2007 high of $195.18.
Without Lampert, Sears might have died years ago. With him, it'll take longer and destroy more capital along the way. But it will still die... The fact is, no matter how smart Lampert is, or how hard he works, Sears is still a has-been retailer in a world filled with the likes of Wal-Mart, Target, and Amazon. At any rate, the market doesn't care about Lampert... and neither should you.
Sears is far more dependent on those scared factoring companies than on Lampert's genius and past successes. Sears shares dropped nearly 2% today on the CIT news.
Lampert reminds me a little of hedge-fund manager John Paulson. They make a big splash and everyone hangs on to every word... Then the next thing they do is fall flat on their faces. In the investment world, there are no flawless gurus or geniuses who never make mistakes. Remember that.
When asked by Bloomberg what the strongest housing market in 2012 will be, Douglas Yearley, CEO of homebuilder Toll Brothers, responded, "New York City. Absolutely." The high-end homebuilder has completed 13 properties in New York City and is developing four more under its City Living brand.
Last month, the company announced it would form a joint venture with Equity Residential, the country's largest publicly traded apartment real estate investment trust (REIT), to build a 40-story building on Park Avenue. The bottom 22 floors will be retail and apartments, controlled by Equity Residential. Toll Brothers will operate the top 18 floors of condominiums.
Yearley is bullish on Manhattan because prices are down and supply is growing. But the rental market is on fire. An improving rental market is typically a leading indicator to the purchase market, since rentals are more responsive to improvements in the economy. But available rentals in New York City are currently 10% below the historical average because nobody can afford to buy a Manhattan condo today. The tight supply is pushing rent up across the board. According to a report from Jonathan Miller of real estate appraisal and consulting firm Miller Samuel...
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The median net effective rent (face rent less landlord concessions) jumped 9.5% to $3,121 from $2,950 in the same period last year. The year-over-year-gains were consistent across all rental price indicators as no apparent shift in apartment mix was responsible for the increases. |
In general, Yearley doesn't expect 2012 to outshine last year. He says the company shouldn't sell "that much more" than 2,600 homes, compared to 2,611 in fiscal 2011.
Big-box retailer Target announced it would open Apple "mini-stores" within 25 of its U.S. locations as "another way to make the seemingly inaccessible accessible," Target design executive Brian Robinson said. Target is also partnering with Cos Bar, The Webster, Polka Dog Bakery, Privet House, and The Candy Store to open up similar mini-stores within Target.
With the announcement, Target also announced a $5 billion share buyback program. (It's close to completing the $10 billion buyback it announced in 2007.) Target's goal is to increase its dividend to as much as $3 per share by 2017, which would be a 6% yield at today's prices. The current dividend is $1.20 per share, or 2.5%.
In today's Growth Stock Wire, editor Jeff Clark discusses a metal he believes is a better deal than gold (and it's 30 times rarer)... It's down nearly 30% in the past four months, to its lowest price in two years. And, compared to gold, this metal is the cheapest it's been in more than two decades. Meanwhile, demand for this metal is increasing. To read the full essay, click here.
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New 52-week highs (as of 1/11/12): UltraShort Euro (EUO), Invesco Insured Municipal Income (IIM), Monsanto (MON), Intel (INTC).
If you hate our advice as much as today's correspondents do, please let us know. Without your complaints, criticism, and condemnation, our lives are easy and boring. Write us feedback@stansberryresearch.com.
"I read with great interest everything from S&A to which I subscribe. Your comments concerning Microsoft however, don't "send me." Having been "forced" to use their system since they upstaged CPM (a magnificent and stable OP), I have always experienced disappointment as each succeeding version included glitches and mistakes. As Steve Jobs is supposed to have said about Bill Gates, "he was more interested in making money than he was in producing a good product"!
Enough said. If Bill Gates had not had a monopoly, he would not have had the success he has enjoyed! That's it, pure and simple. I defy anyone to tell me that he did not have a monopoly!" – Paid-up subscriber H.W. Welch
Ferris comment: They teach you about monopolies in Economics 101. Maybe you just forgot what the word means. Monopolies are like the Post Office, forced upon you by the government, with no possibility of competition. They can only be upheld by force. The market doesn't tolerate them, at least not for long. There are competing operating systems out there, and Microsoft doesn't have a 100% market share. It's not, by definition, a monopoly.
Your comments are typical... Everybody criticizes Microsoft, yet everybody still uses its products. There are alternatives available. The only justification for buying Microsoft products is that they're better than the competition. Please, keep the hate for Microsoft coming. I love it. It makes me jump for joy every time someone says he hates it. This is exactly how everyone spoke of Wal-Mart when I first recommended it back in October 2006. Since then, the dividend is up 117%, earnings per share are up 62%, and sales are up 28%. It's a great business.
"I could not believe what I was reading this evening in the S&A Digest – "we're seeing multi-month break-outs in the S&P 500, small banks, homebuilders, consumer stocks, health care stocks and transportation stocks to name a few. Now is the time to be long."
"Just how does this fit with the daily gloom and doom and the "End of America"?" – Paid-up subscriber Mike Ridgeway
Goldsmith comment: Our "End of America" thesis is centered on how the United States is going to lose its privileged status as the nation with the world's reserve currency (the currency that most all nations must conduct business in). The root cause of this currency decline is that the United States has taken on incredible debts and unfunded liabilities in order to live above its means. It's a long-term thesis... and it will have plenty of stock booms and stock busts along with way. Right now could be the beginning of one of those booms.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
January 12, 2012