What's Left for Sears?

The company's domestic same-store sales, or sales at stores open at least a year, fell 3.5% during November and December. The Sears chain's domestic same-store sales slipped 2.8%, while Kmart same-store sales dropped 4.2%.

Same-store sales declines are an old story for Sears Holdings, but the profit disappointments are relatively new. A recent series of shortfalls have sent the company's stock plunging by more than 50% since its highs last spring.

Sears Holdings now looks like it was a screaming momentum play for years while many on Wall Street were calling it a value play. One of the company's biggest cheerleaders on Wall Street, Credit Suisse analyst Gary Balter, downgraded the stock Monday to an underperform rating with a $70 price target -- more than a $100 discount to his price targets in 2005.

Given the dramatic shift in sentiment, value investors who fancy themselves contrarians ought to like the stock now more than ever, but such a position will likely require a strong backbone this year. Asset values are increasingly uncertain -- even in commercial real estate -- as the housing balloon that powered the recent U.S. economic expansion deflates.

Moreover, the odds of a recession in 2008 are rising, and the outlook for consumer spending is bleak.

"We believe that consumer spending in 2008 will be even weaker than consumer spending in 2007, credit problems will continue to weigh on the consumer, and the housing market will continue its decline," says Balter.

If Lampert's wager on Sears Holdings was ultimately a bet on real estate values and faith in U.S. consumers, he may be losing on both counts.