Companies with hidden value.
K Mart the fifty cent stock....just an example of hidden real estate value.
Well, Eddie Lampert provides us with the perfect example of the tremendous returns that investors can earn by searching for companies with "hidden" real estate assets.
Several years ago Lampert bought a controlling stake in the the nation's third-largest discount retailer -- Kmart. The price tag? A touch under $1 billion in bankruptcy court.
At first glance, that might sound like a steep price to pay for an aging retailer that had gone belly-up. But in reality, when you consider that Kmart owned significant blocks of real estate at over 1,500 prime locations across the country, the roughly $900 million price tag will almost certainly go down in history as being the most jaw-dropping blue-light special Kmart has ever offered.
By the time Lampert took over the firm, investors had already left Kmart for dead. For years and years, the company had slowly crumbled under the weight of declining same-store sales, high operating costs and sluggish profits. Kmart's shareholders saw their stock values dwindle toward zero, and millions of them were furious with company management. Dustin Hoffman might have summed up their feelings best in the hit movie "Rain Man" with his famous two-word remark -- "Kmart sucks."
With this as a backdrop, how on earth did Eddie Lampert figure out that Kmart was worth much more than everyone else on Wall Street thought? How did he know to take advantage of the world's greatest blue light special while other investors were bailing ship?
Well, because Lampert was well aware of the importance of "hidden" assets, he was able to see beyond the firm's poor operating results. Instead of concentrating on the firm's deteriorating business outlook, Lampert focused his attention squarely on Kmart's real estate holdings. After carefully doing his homework, Lampert figured out that Kmart's real estate was worth much, much more than $1 billion.
The end result? shares of Kmart skyrocketed from $15 in March 2003 to highs of more than $150 by the summer of 2005. That made the stock what legendary investor Peter Lynch likes to call a "ten-bagger" in just two short years, and it vaulted Eddie Lampert onto Forbes' annual list of America's wealthiest people.
On a lesser scale or? Siaf is a 10 bagger when we finally account for our land value on a foreign exchange.
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