Foolish Four Portfolio
By
Sears-iously Speaking
ALEXANDRIA, VA (Sept. 24, 1999) -- Sears is the latest Big Dog of the Dow. Every day, a new note arrives in my e-mail asking if it's "safe" to invest in Sears, considering it's going to be bought by a Mexican company, go bankrupt, or be physically destroyed by mobs of angry consumers armed with Craftsman power saws.
(Those are all just rumors, folks.)
The store is definitely in trouble. Customer service has been shoddy for years and lawsuits against the automotive service department have alleged not just shoddiness but illegal gouging of unsuspecting customers (not to mention destroying the evidence). There's no doubt about it; Sears is a dog.
What I don't get is why people think this means they shouldn't buy it.
OK, I do get it. Who wants to put their money into a company that looks like it's going belly-up? Not me. But rumors of its demise notwithstanding, that's what the Foolish Four stocks are supposed to look like. (By the way, if you take a look at the company's financial statements, it's pretty obvious that Sears is not about to go bankrupt any time soon. You heard it here first.)
Remember, the secret of the Foolish Four's success is that it buys out-of-favor stocks. Yes, it does try to avoid the ones that are out of favor for really good reasons, and I suppose that possibility is fueling the worry and angst over Sears. Is this really a stock in financial trouble?
Well, let's look at the latest quarterly report. Is the company losing money? Nope. The company is making money. It's making less money than expected, and it's facing lawsuits that have the potential to seriously affect its profitability, but rumors that it may go into receivership are just nuts. Scare mongering.
Now, is it possible that this is the beginning of a long slide into oblivion? Certainly. Could good management turn the company around in a year or two? Absolutely. Sears is lucky. The company has "money in the bank," not just literally but in the form of a huge stack of credit card receivables that is considered solid gold by the investment banking community. And it has a long and enviable history. If Sears shapes up, and their PR firm lets the world know that it has, customers will flock back.
I used to love Sears. I still love its hardware department. I could spend hours in there looking at all those gleaming hand tools, searching for just the right kind of pliers, and happy to pay several times what pliers would cost at Wal-Mart because these are Craftsman. They feel like tools should feel, hefty and sharp and solid. And if they ever break, I know they will be replaced -- no charge, no receipt, no question.
There is nothing structurally wrong with Sears that can't be fixed by a commitment to quality merchandise and good customer service. It's a Dow dog with as much potential for turnaround as any we've ever had.
Fool on and prosper!