The Wall Street Journal gives short sellers a hand

In October 2007, I took the Wall Street Journal to task for a weak article hammering Wal-Mart. Their timing turned out to be impeccable, as I wrote about in July of this year. Wal-Mart’s stock has handily beat the market since the October 2007 article.

Last week, I think the Journal may have done it again, this time with Sears (full disclosure: my clients and I own shares of Sears Holdings).

The Wall Street Journal’s article, titled “Mr. Lampert, Fire Thyself,” again seems thin on facts and long on generalized evaluations.

The gist of the article is that Eddie Lampert, Chairman and majority owner of Sears Holdings, should fire himself because his strategy with Sears has failed.

To support this claim, the article says another dismal quarter at Sears proves its strategy is failing. The article states that rivals are eating its lunch, too. Missing from the article is any support for these contentions. Which rivals? What made Sears’ quarter so dismal? How has Sears done versus rivals both in terms of stock performance and fundamental economics? None of this information is provided.

The article goes on to mischaracterize Lampert’s strategy with Sears. It claims that Eddie simply decided not to invest in Sears in hopes that would jack up return on investment. If you read any of what Lampert has to say, you’ll see that he would love to invest more in Sears as long as it provides an adequate return on investment. That’s what companies are supposed to do. The author either deliberately or ignorantly misses this distinction.

The article highlights same store sales are down 6% at Sears, but no mention is made of how Kohls, JC Penney, Nordstrom, Target, or any other competitors are doing. The author seems to believe these facts are not important, only the negative evaluation of Sears.

The article does point out that Sears has had a revolving door of executive managers. That’s fair. And, the author points out that Lampert will have a hard time using financial engineering with crunched credit markets and a difficult real estate market. That’s true, too.

But, a couple of facts and a lot of evaluative statements not supported by facts isn’t good reporting. Sears is generating a ton of cash, and its balance sheet is more solid than many rivals. This can be seen in share buybacks if nothing else. Why isn’t that mentioned, I wonder?

Sears isn’t investing much in stores, but perhaps that’s a smarter strategy than throwing good money after bad. Why isn’t that highlighted? And why didn’t the author differentiate between not investing in stores as a strategy versus not investing in inadequate return on capital projects?

I have a guess. I think short sellers are eager to see Lampert and Sears fail. At the same time, Wall Street Journal journalists are hungry for a sensational story. Combine these two ingredients and mix liberally with lack of scruples, and you get a Wall Street Journal article thin on substance and high on sensation.

Perhaps the Journal has called the bottom on Sears like they did on Wal-Mart. I’ll be eagerly watching to see what happens.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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