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    Ackman Grabs Falling-Knife Sears, Target at Short-Interest High

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    sang_garuda
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    Ackman Grabs Falling-Knife Sears, Target at Short-Interest High

    Post by sang_garuda on Sun Aug 17, 2008 7:18 am

    Hedge fund manager William Ackman is counting on comebacks for Sears Holdings Corp. and Target Corp., even as earnings declined, in a bet against fellow investors who have sent short interest sales to record highs.

    The 42-year-old founder of New York-based Pershing Square Capital Management LP has won these kinds of retail bets in the past, most recently in a gain of as much as $202 million on his against-the-market investment in Longs Drug Stores Corp.

    CVS Caremark Corp., the second-largest U.S. drugstore chain, said on Aug. 12 it would acquire the Walnut Creek, California, drug store chain with operations in Western states for $71.50 a share. That was only eight days after a regulatory filing showing Ackman purchased 3.14 million Longs shares in June and July at prices from $40.47 to $45.92 a share. The stock gained 31 percent in trading Aug. 13.

    ``I'd characterize him as a value investor,'' said ``longtime friend'' Whitney Tilson, founder of New York hedge fund T2 Partners LLC. ``He simply tries to buy things for far less than their intrinsic value. Sometimes that means being a contrarian, buying deeply out of favor stocks like Sears, but not always.''

    The payback on his Target and Sears purchases won't come as quickly. Shares of Target, the second-largest discount chain, have fallen 24 percent since Bloomberg reported he bought a stake last year, while Sears shares are off by 32 percent from his purchase of 5 million shares in October.

    Latest Filing

    Ackman controlled 73.9 million shares, or 9.5 percent, of Target through a combination of equity, swaps and options according to a regulatory filing yesterday. He owned 6.75 million shares of Sears, or 5.1 percent, as of June 30, according to a separate filing.

    ``People kind of forget that the man's not infallible,'' said Peter Kwiatkowski, a portfolio manager at Fifth Third Asset Management in Cincinnati.

    His fans argue the race isn't over on Target and Sears.

    ``It's easy to say when a stock has declined after you buy it that you've made a mistake, but there's a big difference between being early and being wrong,'' said Tilson.

    This month, falling fuel prices have helped boost retail shares, sending the Standard & Poor's 500 Retailing Index 12 percent higher and Target and Sears up 9.8 percent and 16 percent, respectively.

    Ackman declined to comment for this story.

    Consumer Pullback

    No doubt, Ackman has bet on retail before obvious signs of revival in the U.S. economy and indications that Europe is faltering.

    Target and Sears have suffered along with other retailers as U.S. consumers, besieged by record gasoline prices and the worst housing market since the Great Depression, defer purchases of non-essentials. Sears in May posted a first-quarter loss after three previous periods of declining profit. Target's net income has shrunk for three consecutive quarters.

    Both retailers have reached record levels of short interest as a percentage of publicly traded shares in the last month. Sears led the Standard & Poor's 500 Index with 55.9 percent as of Aug. 12, according to Bloomberg data. Target's reached 7 percent. The rapid pace of share buybacks and both companies' ``extremely valuable'' real estate holdings make him bullish on the shares, said T2's Tilson in an Aug. 7 interview, adding that he's increased his own Sears holdings recently. Tilson, 41, is a long-term Sears and Target holder who shares a ``similar investment thesis'' on the companies.

    Lampert and Ackman

    Target is ``one of the world's premier retailers,'' Tilson said. For Sears, ``we look at it as a portfolio of brands and assets being managed by one of the premier capital allocators in the world,'' he said.

    Ackman actually made some money with the help of Sears Chairman Edward Lampert once before. In 2004, Pershing Square bought shares of Kmart Holding Corp., the company merged with Sears, when shares were trading around $29. The firm sold 1.6 million shares two years later when they were trading around $160.

    Sears has ``fantastic'' real estate in its Kmart stores, coveted by other retailers because of their locations outside of malls, said Dan Poole, senior vice president of equity research at National City Bank, with $34 billion in assets including Target shares.

    Breakup or Spinoff

    ``At some point I think there just needs to be either a breakup or a spinoff of businesses to try and realize that value,'' Fifth Third's Kwiatkowski said. As a retailer, ``Sears just doesn't have enough strength to compete.'' His fund doesn't own Sears and sold its Target shares earlier this year, although the firm, with $21.4 billion in assets, still holds Target.

    Poole's firm doesn't hold Sears either. ``I'm not sure what the end-game is there,'' he said. ``We have Target on our buy list, but we don't have a lot of near-term hope,'' Poole said. ``The concern from an investor's perspective right now is credit losses.''

    Ackman doesn't limit himself to retail. He recommended selling shares of bond insurers MBIA Inc. and Ambac Financial Group Inc. before both fell by at least 80 percent in the past year.

    ``He was definitely dead on with MBIA and Ambac,'' Kwiatkowski said. ``In this business it's very, very rare that you don't have some missteps. But it's easy to forget once somebody has one big win.''

    Tilson said he expects Target and Sears to be winners, too. ``The fact that there are so many naysayers out there,'' he said, ``just means that vindication will be all the sweeter.''


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    Re: Ackman Grabs Falling-Knife Sears, Target at Short-Interest High

    Post by Prodip2007 on Sun Aug 17, 2008 10:11 am

    ------||------------||------nice sharing bro.Tq u bro...Tq u very much...Keep up bro------||------------||------

      Waktu sekarang Tue Dec 06, 2016 7:42 am