The Other Sears

NEW YORK (TheStreet) -- It certainly had not been a good time to be a shareholder of any companies with "Sears" as part of their name. Sears Holdings (SHLD), which now trades at the same level it did 10 years ago, has been a disaster. While it was perceived by many that the retailer's best days were behind it several years ago, there was renewed interest due to the leadership of well-regarded Chairman Eddie Lampert, and the value within the company's vast real estate holdings.

I was there for the presentations, along with hundreds of other value investors, as the case was made for both Lampert and the incredible value locked within the real estate. I am usually a sucker for companies that own real estate, but in this case, it just did not make a great deal of sense to me. After all, Sears was still primarily a retailer, and an old one at that. I could not shake the vision of the mall-based Sears stores of my youth, and how I barely ever stepped foot in them or the company's other disaster, Kmart, any longer.

In 2010, this was a $120 stock, with much higher prospects, according to some well-known value investing veterans. But with revenue continuing to fall, having not had a profitable year since 2011, and having been unable to unlock the "value" in the real estate, shares are now in the $38 range. The holiday retail season was horrible, with comps down 7.4%, and the last two months have been particularly disastrous for the stock, which is down 42% during that period.

SHLD Chart
SHLD data by YCharts

The recent announcement that Sears will spin off Lands' End was not unexpected, and it is conceivable that the company will continue to ditch some of its better businesses, such as Kenmore, Craftsman and its Auto Centers, in hopes to keep it afloat.

In 2012, the company spun off Sears Hometown and Outlet (SHOS), which operates more than 1200 stores in the U.S. The stock, somewhat surprisingly, ran up 85% between October 2012 and the following June, but has since given back all of those gains and more. Shares now trade at an all-time low. Interestingly, the company, which is profitable and currently trades at 12 times trailing earnings, has no analyst coverage.

Revenue was up less than 1% last quarter, and net income fell 21% to $7.7 million, or 33 cents a share. Still, this stock appears to have been overly punished, down 43% since September. Perhaps it's due to the perception that this quarter will not be strong, given the bad news from other retailers. However, it could also be that it is too closely associated with Sears Holdings.

SHOS Chart
SHOS data by YCharts

Sears Hometown Outlet hit my radar recently because it is a new addition to my "double net" screen, which reveals companies trading at less than two times net current asset value. In fact, the stock currently trades at just 1.84 times NCAV. Profitable companies trading at less than two times NCAV can be very compelling, and the company is now on my watch list.

Perhaps one of the moves the company should consider at this point is a name change. These days, being associated with Sears -- at one time was the retailer of choice -- is not a positive for investors.

At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Jonathan Heller, CFA,CFP® is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

  Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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