Sears Holdings Corp (SHLD) Stock Is Fool’s Gold

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If you were holding on to struggling retailer Sears Holdings Corp (NASDAQ:SHLD) this past week, congratulations. Sears stock has gained nearly 30% in just five days — a feat that very, very few people expected from the bedraggled department store chain.

This Sears Holdings Corp (SHLD) Stock Pop Is Fool's Gold

After all, just a few days ago, Sears gave investors reason to run for the hills by saying it was unsure about its “ability to continue as a going concern.” In short, management has very real worries about the firm going under, and amid a ton of talk about turnarounds, it finally openly admitted it.

Days later, SHLD stock made its way skyward.

What Happened?

Sears CEO Eddie Lampert and Fairholme Fund’s Bruce Berkowitz happened.

The two bought up 526,000 and 286,600 shares over the past week in what many believe was an effort to squeeze out short sellers. It’s difficult to imagine a situation in which Lampert and Fairholme expect Sears to turn itself around. The company’s financial results have gotten progressively worse from quarter to quarter, and the firm’s revenue has declined every single year for the past decade.

Some have pointed to the company’s “Boss Your Own Wallet” campaign in which customers can enjoy a series of deals over the next few weeks as a potential way to drive traffic and increase sales.

That’s a flimsy place to hang a coat. Sears’ dismal financial state has required a true retail renaissance — some gimmicky sale isn’t going to do the trick.

To survive, Sears needs to up its game both online and in-store. Retail is a dangerous industry at the present and much larger and better managed stores are feeling the burn of the public’s shift toward e-commerce.

Being in the retail industry means you’re already on thin ice, and Sears isn’t healthy enough to wait out a storm.

It’s a Reason to Get Out, Not In

The recent lift in SHLD stock was certainly great news for investors who were still holding out hope for a turnaround, but as we’ve pleaded several times now, please get out while you still have something to get out with.

You could’ve made an argument for a quick turnaround rally with Sears shares trading just above the $6 level. At nearly $12, though, it would be foolish to initiate a long position in a company that has admitted that liquidation is a very real possibility.

A Tangled Web

Sears is in very real financial danger, but CEO Lampert seems to be single-handedly keeping the company from going under. Lampert and Berkowitz own roughly 80% of the company. That’s a huge chunk, so their actions may not have the best interests of the remaining 20% of regular SHLD stock holders in mind.

To make matters even murkier, Lampert is also a Sears creditor.

Sears holds a great deal of secured debt, and Lampert together with his hedge fund own nearly half of it. That means Lampert will be up there with the first line of creditors to collect on that debt if SHLD goes under.

Put another way, if Sears goes bankrupt, Lampert gets his before you get yours — if you ever get yours.

Bottom Line on SHLD Stock

Sears is a bad investment. Period.

You could look at Lampert and Berkowitz’s massive stake in the company as a vote of confidence, but that facade melts away at a closer look. Lampert has been keeping SHLD stock from drowning for far too long and eventually the cash-guzzling business will sink.

If it was me, I’d be opting for much more durable brick-and-mortar retailers like Home Depot Inc (NYSE:HD) or Lowe’s Companies, Inc. (NYSE:LOW) that don’t have nearly the pressure from online competitors.

Either way, bail Sears while you still have a chance.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/sears-holdings-corp-shld-stock-fools-gold/.

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