Bruce Berkowitz Reduced Stake In One Of The Largest Broadline Retailers In The U.S.

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Mar 19, 2015

Bruce Berkowitz (Trades, Portfolio) is the founder and the managing member of the Fairholme Fund (Trades, Portfolio). The investor reported decreasing his stake in Sears Holdings Corp (SHLD, Financial) on March 16, according to GuruFocus Real Time Picks.

Berkowitz is the largest shareholder of Sears Holdings, which upped its stake by 5% on the quarter to 26.54 million shares held as of the end of 2014. But now, with the transaction, Berkowitz’s position decreased by 0.16% to 26,498,973 shares. The fund initiated a position more than five years ago, and during 2014 Berkowitz added the stake to reach 26,545,273 million shares at the end of the fourth quarter of 2014, worth $875.46 million.

Sears Holdings Corp’s shares lost 32.75% during the past year and closed 2014 at a price of $32.98 each. The last closing price is at $39.79, so the return year-to-date is about 20%.

The company operates as a retailer in the United States and Canada. It also has a $4.14 billion market cap. When looking at the company, we can find several severe warnings. Revenues constantly declined in the past three years, as well as the gross profit margin. Also, the Piotroski or F-Score of 1 is considered low. Considering these warnings, it would not be strange to think that the hedge fund manager continue reducing its position in Sears.

Sears has been making some moves in order to improve its business. The firm has closed more than a hundred of underperforming Kmart and Sears Domestic stores. Further, it has completed the spin-off of its Sears Hometown and Outlet businesses. In addition, it has reduced its stake in Sears Canada (SRSC, Financial) to a half (from 96% to 51%) of it. Finally, last year the company spun off its Land's End Inc. business to shareholders.

Whether the closure of unprofitable stores or the evaluation of separating Sears Auto Center businesses, we think Sears still faces a strong competition in a difficult environment. So in this opportunity, I think is time to make a sell recommendation on this stock.

In terms of valuation, the stock sells at a price-to-sales ratio of 0.13x.

Edward Lampert (Trades, Portfolio) is the second-largest shareholder, with a stake of 26.44 million shares in the fourth quarter of 2014. Other prominent investor that reduced the position was Murray Stahl (Trades, Portfolio). In the fourth quarter, he sold 535,712 shares to 5,012,760.

Disclosure: Omar Venerio holds no position in any stocks mentioned