Best Bet In Pharmacy

Health wellness is no longer just a fad. First, there's the rising consumption of vitamins and supplements. Second, there's the rising demand for drugs. Both of these are being driven by a rapidly aging population in the U.S. But it's not the likes of Walgreen (NYSE: WAG  ) or CVS (NYSE: CVS  ) that will be the biggest benefactors. Rather, it's the No. 3 player in the industry, Rite Aid (NYSE: RAD  ) .

Rite Aid has over 4,500 stores and is the third largest pharmacy in the U.S. based on store count and revenues. It not only operates pharmacies but also offers clinical services. It extended its presence in the clinic industry earlier this year with its acquisition of RediClinic.

Capitalizing on vitamins
One of Rite Aid's biggest opportunities includes a partnership with GNC. Just this year, it extended its partnership through 2019. This is a key positive, as it's a long-term play on the rise of the health-conscious consumer. Rite Aid plans to add 300 GNC LiveWell store-in-a-stores over the next five years, in addition to the 2,200 already in Rite Aids.

Rite Aid is also remodelling many stores to the Wellness format (which includes a big store redesign and more focus on clinical services). It also has a customer loyalty program via Wellness+.

Boosting margins and long-term growth
One of the best opportunities in pharma is to capitalize on aging baby boomers. This includes not only increasing exposure to vitamins and supplements, but also generics. Both of which Rite Aid is doing.

Generic drugs are generally less expensive and have higher gross margins for pharmacies. There are also a number of key medicines that will lose their patents in 2015, driving a lot more generic medications onto the market. Earlier this year, Rite Aid extended its agreement (for five years) with its key generic drug distributor, McKesson.

Rite Aid isn't the only company looking to tap the generics market -- so are Walgreen and CVS. The three key drug distributors (distributing 80% of all drugs in the U.S. collectively) are McKesson, Cardinal, and AmerisourceBergen. Rite Aid has a new deal with McKesson, and Cardinal recently signed a 10-year deal with CVS. Meanwhile, AmerisourceBergen signed a 10-year deal with Walgreen and Alliance Boots.

CVS is less of a play on retail pharmacies, where about 50% of its revenues are derived from its pharmacy benefits management segment. However, Walgreen became a larger player in the global pharmacy market earlier this year. Its 45% ownership of Alliance Boots (and potential purchase of the remaining part of the company) gives Walgreen leverage in the generic drug market, allowing it to purchase drugs cheaper, given it's now the world's largest purchaser of generic drugs.

How shares stack up
Shares of Rite Aid trade at a P/E of 15 based on next year's earnings estimates. Walgreen trades at 18, but CVS only trades at 15.4. However, one of the most compelling metrics for Rite Aid is its P/E to growth rate (PEG) ratio, which is right at 1.0. Compare that to to CVS's 1.4 and Walgreen's 1.6. What's more is that Rite Aid has the best return on investment, coming in at 18%, while CVS and Walgreen's are right at 10%. 

Bottom line
Although it's rather underrated, Rite Aid appears to be the cheapest option in the major pharma retail industry, but it also has a number of growth opportunities. For investors looking for a solid play on the rising demand for drugs and vitamins, Rite Aid is worth a closer look.

Finding Value In Organic Foods

Shares of Whole Foods Market (NASDAQ: WFM  ) have been relatively flat since their initial tumble back in May and are still down 40% from their 52-week highs. Bloomberg expects Whole Foods Market to have one of the fastest growing dividends over the next few years. It has a projected three-year dividend growth rate of nearly 20%. Its dividend yield is 1.3%, and it's the only one of the three big specialty grocers (which includes The Fresh Market (NASDAQ: TFM  ) and Sprouts Farmers Markets  (NASDAQ: SFM  ) ) that offers a dividend. However, is that dividend enough to keep investors interested?

The industry leader
Whole Foods is the leading specialty foods retailer by far, but it's come under pressure over concerns about its growth. For its fiscal second quarter its same-store sales growth came in at 4.5%, which was below the 6.9% it churned out in the same quarter last year. It also laid out sales growth expectations for 2014 which include 10.5%-11% growth, down from its previous guidance of 11%-12%. This led to a cut in expected earnings growth from 7%-12% down to 3%-6% for the year. However, Whole Foods has laid out long-term goals; these include getting its sales to $35 billion by fiscal 2018, versus current annual revenue of just under $14 billion.

As mentioned, Bloomberg expects Whole Foods to have one of the fastest growing dividends in the market over the next few years. In addition, the company is still generating impressive levels of cash flow. During the fiscal second quarter of 2014, it brought in $282 million in operating cash flow. It spent $143 million on capital expenditures, so it had cash left over to spend $45 million on dividends and $55 million on share buybacks. Whole Foods still has nearly $670 million left under its current buyback program, which is good enough to reduce its shares outstanding by 5%.

The next best thing
The Fresh Market is one of Whole Foods' biggest competitors. While Whole Foods might be hitting a level of saturation, it appears that the likes of Fresh Market still have expansion opportunities. The company had around 150 stores as of the end of fiscal 2014, which it grew from just 50 in 2005.

Goldman Sachs recently slapped The Fresh Market with a sell rating, noting that the grocer will come under pressure from rivals and increased input costs. Thanks to this, Goldman also believes it will be hard for the major specialty grocers to meet earnings expectations for this coming quarter. This comes after The Fresh Market reported earnings in line with estimates and comparable store sales up 2.5% in its quarter that ended in April. However, it reported lower-than-expected margins.

Prior to Goldman, Morgan Stanley started coverage on The Fresh Market with an underweight rating. The investment bank noted that the grocer hasn't been effectively marketing itself as having superior quality perishables. 

The underrated player
Then there's Sprouts Farmers Markets, which has 175 stores across the Southwest. Sprouts Farmers Markets has a bit of a different business model than the other two since it focuses on produce. Its stores are set up with more informal and open designs.

Its produce sales account for a quarter of its sales, but only take up 15% of its selling square footage. The company also has a big opportunity to grow its store base. It thinks it can expand to 1,200 stores total across the US, with three quarters of these stores in new states where it doesn't currently have a presence. Sprouts Farmers Market is the cheapest of the three stocks listed on a forward P/E and P/S basis. It also has the highest return on equity.

Bottom line
All three specialty foods retailers should be winners as the economy rebounds, since the demand for for higher-priced goods will increase. Whole Foods Market has one of the best brand names in the organic foods supermarket space. It has been the hardest hit of the three in terms of stock price over the last few months. However, it's still not the cheapest. For investors who are interested in playing the organic foods space, The Fresh Market looks to be worth a closer look.

Making The Most Of Overreactions In Refiners

It has been a tough month for oil and gas refiners. Many of the leading companies in the sector have seen large sell-offs. The news that the Commerce Department opened up the "floodgates" for U.S. oil exports drove this sell-off. However, in truth, it was merely a slight tweak of the law, allowing two companies to export lightly refined crude oil.

Marathon Petroleum Corporation (NYSE: MPC  ) , Holly Frontier Corporation, and Valero Energy Corporation (NYSE: VLO  ) are all down over 7% for the last month. The one bright spot is Western Refining (NYSE: WNR  ) , which is actually up 2% over the last month. But are all of them worth buying on this weakness?

How shares stack up
After the sell-off, some of the major refiners will likely attract value investors. Some of the most notable ideas include Valero and Marathon Petroleum. The two trade as a couple of the cheapest stocks in the industry on a forward (based on next year's earnings estimates) P/E basis. Each trades at a forward P/E of under 8, while Holly Frontier trades at a forward P/E ratio of 9.4 and Western Refining's ratio is 9.3.

They are still very solid businesses, companies that are fundamental to refining oil into gasoline and lubricants. The refiners have been enjoying the Brent and West Texas Intermediate oil price spread. They are buying oil for cheap at WTI prices, refining it, and then selling it for higher prices in international markets at Brent prices.

With U.S. oil and gas production still on the rise, refiners should continue benefiting. The large amounts of oil being extracted thanks to fracking and new drilling techniques still can't be exported, leaving plenty of business for the U.S. refiners.

Citi Financial recently came out and noted their bullishness on the industry. They are looking at the long-term prospects of the industry, with production of U.S. oil expected to continue growing. The firm notes the "sticky" nature of oil prices (meaning there's little fluctuation) due to Middle East volatility, which is a positive for refiners.

The best refiners to invest in
Marathon is one of the best picks in the industry after completing a number of acquisitions and repurchasing more than $3 billion worth of shares in the last two years. It also offers a 2.2% dividend yield. As far as acquisitions go, earlier this year Marathon Petroleum acquired Hess' retail operations. This included its transportation and shipping ability on various pipelines.

Valero has big potential thanks to its position in the Gulf Coast, where the competition leads to greater discounts on crude oil, boosting its margins. New pipelines and rail investments will also help bring more oil to the Gulf Coast, another big positive for Valero, where half of its refining capacity is located along the Gulf Coast. As well, its key refiners are located close to the booming Eagle Ford shale. Valero offers the smallest dividend yield of all the stocks listed, however, coming in at 2%.

Western Refining is actually restructuring itself as holding company that will own limited and general partnership interests in Northern Tier Energy and Western Refining Logistics. This setup will give Western Refining a lot more flexibility with its operations. This includes the potential to shift some of its exposure from refining to retail and logistics. The holding company structure that Western Refining is pursuing is something that the likes of Williams Companies and Spectra Energy have both used, allowing them to boost dividend yields. Western Refining's dividend yield is 2.6%, compared to Williams' yield of 2.9% and Spectra's 3.2%.

Bottom line
Overall, the refiners appear to be offering investors a compelling entry point. The future of the industry looks bright, thanks in part to the stabilization of international oil prices, but also because new drilling techniques are bringing to market more and more oil to be refined. For investors looking for exposure to the bustling refinery business, Valero and Marathon Petroleum are worth a closer look. 

Best On This Founder

Founders sometimes have volatile relationships with the companies they start. One of the most volatile in recent memory has been Men's Wearhouse and its founder George Zimmer. After a very public falling out, Zimmer was booted out of the company he founded. He was not too pleased and threatened to buy the company outright.

The war of words at Men's Wearhouse was enough to get management to pay attention. Management knew their jobs were on the line and that they needed to do something. As a result, Men's Wearhouse agreed to merge with its smaller rival, Jos. A. Bank Clothiers. Since the time George Zimmer left the company, shares are up over 50%.

The latest founder to stir the pot is Chip Wilson, the founder of Lululemon Athletica (NASDAQ: LULU). Shares are already roughly 20% off their 52 week lows, but if Men's Wearhouse is any indication, shares could run a lot further. Shares of lululemon are still down over 33% in the past year.

Founder uproar
Chip Wilson is looking at a number of options. He is in talks with Goldman Sachs about gaining more control of the company. His options include a proxy fight, or teaming up with a private equity firm for a buyout.

This sabre rattling from Chip Wilson should be enough to get lululemon management concerned. One of their options could be to find a buyer for the company. Analysts are speculating that Nike (NYSE: NKE  ) or VF Corp. (NYSE: VFC  ) could be interested in the apparel company as a nice addition to their product lines.

Who would buy lululemon
lululemon isn't a very small company, with an enterprise value of just around $5 billion, so it'll take a company with the balance sheet capacity to buy up the apparel maker. Also, ideally, the buyer will have a global presence. This would help lululemon expand into international markets faster, where 90% of its sales are in the U.S.

Like lululemon, Nike has also outlined its focus on the women's business. Thus, an acquisition of a company with the leading brand in women's yoga pants could accelerate the company's push to increase its sales to women. On the flip side, it has been committed to getting rid of non-core brands, which would mean Nike would go against this recent trend with a lululemon acquisition. A few of its notable divestitures over the last few years have been Starter, Umbro, and Cole Haan.

Then there's VF. This apparel company has a proven ability to buy and integrate brands. However, VF has focused on lower-margin businesses in the past, of which lululemon is not one. What's more is that VF already has a presence in the yoga pant business with the lucy brand. This brand was recently diffused into major retailers, including Dick's Sporting Goods and Dillard's.

The big hangup is that lululemon still trades at a premium compared to major peers. Thus, while it's cheap on a historical basis, its still one of the more expensive names in the industry. On the flip side, lululemon's business is high margin. The yoga pants company has a return on investment and profit margin that's above that of either Nike or VF. But the high margins don't negate the fact that lululemon's business has been in decline. Earnings grew at an annualized 50% over the last five years, but are only expected to grow earnings by 3% this year and then 15% next year -- the latter of which is in line with peers.

Bottom line
Shares of lululemon are trading at valuation levels not seen in half a decade. With that, it could be an attractive takeover target for one of the larger apparel retailers. Investing in a stock for buyout speculation alone is never a good idea, but for investors looking for a beaten-down athletic apparel company in turnaround mode, lululemon is worth a closer look.

Why Wal-Mart Is Dead Money

Over the last five years, shares of Wal-Mart (NYSE: WMT) are up around 60%, a return nearly half that of the S&P 500. This comes as the company is finding it hard to grow. With a nearly $250 billion market cap, it's easy to see why finding new markets or undergoing massive cost cuts could be difficult.

Over those last five years, Wal-Mart has managed 3.3% annualized revenue growth. Compare that to the near 11% annualized growth that one of Wal-Mart's biggest competitors, Dollar General (NYSE: DG), has managed over the same time period. However, for long-term investors, Wal-Mart could still be a worthwhile investment.

Wal-Mart's big overhang
It appears that the retailer's biggest problem is generating enough sales to move the growth needle. For example, Wal-Mart has noted that it's a big feat to generate $5 billion in incremental sales just to show 1% sales growth. As a result, Wal-Mart is turning to e-commerce to help expand its reach. Its e-commerce revenue grew 30% in fiscal 2014 to $10 billion, while the entire company brought in $473 billion. On the flip side, Wal-Mart might also turn to 3-D printing in an effort to better meet customer needs. It could use the technology in its stores to keep items in stock, and also print custom items.

Luckily for Wal-Mart, its chief competitor Target is also struggling. Target has been facing slightly different issues, however. Target mainly operates as a North American retailer, unlike Wal-Mart with its worldwide presence, and Target's recent entry into the Canadian market did not go as planned. The company tried a nationwide roll-out and ended up stretching its distribution network too thin, which left many stores short of inventory. That seems like a fixable problem for Target. 

Even still, Morgan Stanley has come out and backed Wal-Mart. The investment firm has put an $87 price target on the company. That's about 13% higher than where Wal-Mart currently trades. The firm said that the retail giant is one of the best low-risk plays on the rebound in low-end consumer spending. It also noted that Wal-Mart has vast omni-channel capabilities. On the flip-side, Morgan Stanley slapped Target with an underweight rating last month. The firm put a $60 price target on the stock, which is right around where it currently trades.

Dollar store competition
Massive retailers are facing competition from the robust growth of dollar stores. The majority of these companies are much more nimble than larger retailers. The leading dollar store operator, Dollar General, has a store base over double that of Wal-Mart in the US. However, Dollar General has no plans to stop growing.

Given its smaller store base and ability to excel in rural markets, Dollar General plans to open a total of 700 stores in 2014, while Wal-Mart plans to open 115 supercenters and 120 smaller format stores. Granted, Wal-Mart has taken a direct shot at dollar stores with its push to open smaller stores, but it still has a lot of catching up to do as Wal-Mart only has a few hundred small format stores open.

It would seem that Dollar General's consumables and tobacco offerings are still bringing traffic into its stores. Its comparable-store sales continue to grow nicely; 2013 was the 24th straight year of comparable-store sales growth for the retailer. What's more is that it's looking to add wine and beer to its stores to continue this string of comp-store sales growth.

How the shares stack up
Wal-Mart does have the lowest P/E ratio of the three stocks at 16. Target trades at a P/E ratio of 20.3 and Dollar General trades at 17.9. Target pays a 3.5% dividend yield, while Wal-Mart yields 2.5%. Wal-Mart has managed to increase its dividend every year for the last 38 years. And when you look out over the last 38 years, Wal-Mart's total return (stock price appreciation and dividends) is 732%, while the S&P 500 provided a total return of only 543%.

Bottom line
Wal-Mart has underperformed the S&P 500 for the last half decade, but it's still a dividend-paying machine. Over the long term, it's proven it can beat the S&P 500 handily. It's also tapping into the vast e-commerce market for future growth. For long-term investors who can look past the interim noise, Wal-Mart is worth a closer look.

The Best Industrial Play Isn't CAT

Some industries thrive in a rebounding economy, others are more hit and miss. There's no better business to be in when the economy is booming than in cranes. One of the largest crane companies in the world is Manitowoc (NYSE: MTW).

Its crane business continues to thrive, and it has a food equipment business that is capitalizing on the global population increase. Manitowoc gets just over 60% of its revenues from cranes, but another 40% comes from foodservice equipment. However, that could be about to change.

Shaking up Manitowoc
Relational Investors, one of the largest activists around, wants to break up the company. Owning 8.5% of the company, Relational notes that by separating the industrial and food equipment businesses, the stock would trade more in line with its peers. Relational is no stranger to breaking up big companies. Its big wins include breaking up B/E Aerospace and Timken.

Relational notes that Manitowoc's current business, which includes two segments, trades at a "perpetual discount, as reflected in the company's stock price performance and its EV/EBITDA multiple, which is more closely in line with its public crane comparable than its public food equipment comparable." The public food equipment companies generally trade at a premium to crane companies.

Crane and foodservice equipment is still a strong combo
Manitowoc expects top-line growth for both the crane and foodservice segments in 2014. The foodservice segment revenues grew 9% year over year during the first quarter, and should continue growing nicely as Manitowoc introduces new products. These include various new hot and cold products coming to market this year.

On the crane side, revenue growth should continue as emerging economies in Europe and the Middle East urbanize, increasing the demand for crane equipment. A couple of other key areas that could drive crane demand are the oil and gas markets and wind sector. The oil boom in the U.S. is proving to be a big positive for Manitowoc.

The rest of the industry
Caterpillar (NYSE: CAT  ) is one of the best known names in the heavy equipment business. The company is also very much a global company. While Manitowoc gets around 40% of its revenue from outside the Americas, Caterpillar gets 60% from beyond North America. Manitowoc has managed to outperform Caterpillar by two-fold over the last five years. Caterpillar has also come under fire from the likes of Jim Chanos.

Chanos' biggest gripe is that the mining and equipment business is in decline in China. So while its North American construction business is growing, China's growth is moderating. 

Chanos has pointed out a number of times that capital spending in the mining industry has likely peaked. Caterpillar gets around 20% of its operating profits from the resources industries. Chanos has reiterated that back in the early 90s, the mining industry was spending $5 billion a year, and spending peaked at $145 billion in 2012. Annual spending is now down to $120 billion and could fall further.

Dover Corp (NYSE: DOV  ) is another major industrial conglomerate. Its revenues are spread across various segments, with none accounting for more than 35% of total revenues. Its four segments include engineered systems, energy, refrigeration & food equipment, and fluids. But despite having a near $15 billion market cap, the stock is still fairly underrated. Manitowoc has outperformed Dover by over five-fold over the last five years.

This conglomerate is turning to acquisitions for growth. Earlier this year it snatched up MS Printing Solutions, which has given the company a larger presence in textiles, ultimately helping it expand beyond just the consumer and industrial markets. During the first quarter, revenues grew 7%, which included 3% contribution from acquisitions. For the full year 2014, revenue growth is expected to be in the range of 6% to 7%, with acquisitions adding 3%.

How shares stack up
While Manitowoc does have the highest P/E ratio of the three stocks, it has the lowest P/E to growth ratio (PEG), which is at 1.0. The other two stocks have higher PEG ratios, with Dover's coming in at 3.5 and Caterpillar at 1.5. Manitowoc also has the lowest P/S ratio of the three.

Meanwhile, Manitowoc's dividend yield is a mere 0.25%, but Dover's is 1.7% and Caterpillar's 2.5%. Digging a bit deeper, Manitowoc has the best return on investment (ROI). Its ROI is 14.1%, while Dover's is 13.2% and Caterpillar's is 7.4%.

Bottom line
Manitowoc has been a great performer with its crane and food service businesses. But a potential spinoff of the food business could help propel the company further into the industrial industry and help the company trade at higher multiples. For investors looking for a solid play on the global economy, Manitowoc is worth a closer look.

Finding Value In Home Goods

Shares of Bed Bath & Beyond (NASDAQ: BBBY) are down to levels not seen since early 2013. The stock tumbled nearly 10% in one day earlier this month, hitting a new 52-week low, after posting disappointing fiscal first-quarter earnings results. Comparable-store sales for the fiscal first quarter came in at 0.4%, compared to 3.4% for the same period last year.

This also follows up a weak fiscal fourth quarter. The company's fourth-quarter earnings were down 5% year over year, and same-store sales growth of 1.7% was below company expectations of between 2% and 4%. However, Bed Bath & Beyond still offers consumers a unique shopping opportunity, and it could be a deep value investment opportunity.

What to expect going forward
Bed Bath & Beyond doesn't just operate Bed Bath & Beyond stores, but also World Market, Cost Plus, Christmas Tree Shops, and buybuy BABY stores. The beauty of Bed Bath & Beyond is that it aligns its merchandise with the geographical region.

While Bed Bath & Beyond doesn't have much of an e-commerce presence, it is focusing on expanding its retail footprint. The company plans on opening 30 stores this year in Mexico. Then, over the long term, it hopes to boost its U.S. and Canada store count to 1,300, up from its current store base of under 1,100.

The company also expects to make a bigger push toward tech going forward. This includes upgrading its app and its mobile site. Other major areas of upgrade include boosting the communication between its stores and implementing a new point of sale. Both options should help improve inventory.

Still plenty of value in home goods retail
Pier 1 (NYSE: PIR  ) is one of the best turnaround stories in the home goods space. After trading at $0.11 back in 2008, the company has clawed its way back and is consistently growing revenues. Sales have been up every year for the last five years, with a cumulative growth rate of 37%. It is worth noting that Bed Bath & Beyond has grown revenues by 47% over that same time period. 

Shares of Pier 1 nearly hit $35 in late 2013, but they've since retreated and are down 35% from their all-time high. It has orchestrated a solid turnaround despite the economic backdrop. Going forward, Pier 1 plans on continuing its new policy of net store openings. After having closed stores for a number of years, it opened six in fiscal 2012, opened 10 last year, and plans to open another 10 this year.

Williams Sonoma (NYSE: WSM  ) remains one of the best-positioned companies given its omni-channel approach. The biggest part of this is the company's presence in e-commerce. In fiscal 2014, just under 50% of its revenues were derived from the direct-to-consumer segment, while the rest came from retail. Williams Sonoma also owns the Pottery Barn brand, which is an assortment of home furnishings and furniture.

How shares stack up
Bed Bath & Beyond trades at a P/E ratio of 12.3, which also happens to be the lowest in five years. This P/E ratio is also below Pier 1's P/E ratio of 15.9 and Williams Sonoma's 25. At 26%, Bed Bath & Beyond boasts the highest return on investment of the three. It also has the highest profit margin, and Bed Bath & Beyond has no debt.

A notable bright spot is the company's new buyback plan, which is good enough for $2 billion. This is in addition to its close to $900 million buyback plan outstanding. That's good enough to reduce its shares outstanding by over 20%. The new buyback plan is expected to be completed by fiscal 2016. Bed Bath & Beyond doesn't offer a dividend yield, but PIer 1 and Williams Sonoma do, coming in at 1.5% and 1.8%, respectively.

Bottom line
Bed Bath & Beyond does appear to be in deep value territory. At the very least, it's much cheaper than major peers and has better margins. The company is increasing its spending on technology in an effort to better manage inventory in its stores. It also has a robust buyback plan that should help further grow earnings. For investors looking for a presence in the home improvement market, Bed Bath & Beyond is worth a closer look.

The Pipe Dream That Is A Sears’ Turnaround

It's really been a roller coaster ride for the shareholders of Sears Holdings  (NASDAQ:SHLD). The stock has been a perennial under-performer over the last half decade or so, in addition to being extremely volatile. Majority owner, and CEO, Eddie Lampert has been stripping out capital expenditures and selling off assets as part of his turnaround plan. Unfortunately, upon closer inspection, it appears that any hope of a turnaround is a long way away. Here's why. 

Where have massive cost cutting led Sears?
As previously mentioned, Eddie Lampert came in slashing investment in the company's actual retail business, hoping to boost free cash flow. While this initially worked, the ultimate fallout has led to steep declines in revenues.

In a blog post on searsholdings.com, Lampert attempts to rebut the criticism of his aggressive capital expenditure reductions. He compares Sears to other retailers that have trimmed capital expenditure spending, including Home Depot and Macy's. Where these retailers have been cutting investment in retail stores to boost online sales.

Home Depot and Macy's have been tapering their capital expenditures over the last half decade or so, but this has translated into marked growth in the companies' free cash flow. Both Home Depot and Macy's have grown free cash by 50% over the last five years.

Meanwhile, Sears' initial cut in capital expenditures helped boost free cash, but only for a short period. In 2007 and 2008, Sears spent upwards of $550 million annually on capital expenditures; it's lowered that to $340 million over the trailing twelve months.

Thanks to this, Sears generated $1.25 billion in free cash in 2010, but over the trailing twelve months Sears free cash flow was a negative $1.3 billion.

What's more is that from 2007 to the trailing twelve months, sales have steadily declined from $50 billion to $35 billion. With the decline in sales, and the inability of Lampert to effectively cut costs, Sears has turned to an asset disposal strategy.

Aggressive asset sales doing little to help
Sears has been chopping off limbs to save the body, so to speak. Land's End  (NASDAQ:LE  ) has been spunoff, so has Sears Hometown and Outlet Stores. It closed its flagship store in Chicago's Loop earlier this year, and has sold off various properties across the country.

But after the spinoff, Lands End continues to excel. Last quarter, Lands' End posted fiscal first quarter earnings that showed comparable store sales up 3.4% year over year. This comes as the retailer is avoiding the decline in traffic that major retailers are experiencing. Lands' End has a very strong online presence

Now it's thinking of dumping its 51% stake in Sears Canada (TSX: SCC  ) . But there are likely only a handful of potential buyers, meaning the price might not be all that favorable. What's more is that the business only has 14 department stores, Sears has already sold off the company's most profitable stores. Last year, Sears Canada sold off seven of its top properties. One of those properties was the Toronto Eaton Centre store, which is right above the company's headquarters.

The other issue with Sears is that it has been unable to reduce debt, even after selling off some of its most profitable businesses. Its net long-term debt (less cash) was up to $3.2 billion at the end of 2013, which is a big jump from the $2.75 billion in 2012 and $1.75 billion in 2011.

What about the real estate?
Sears Holdings got some of the best news in a long time last year, when Baker Street Capital put together a report that said the company had $7.3B in real estate value -- compared to its current market cap of just $4.1 billion. Sears got an initial boost from the report, trading above $50 a share for a brief period, but its stock price was quickly brought back to reality.

The key issue is that some real estate assets might not be available during a liquidation. There are various stores that are leased back to Sears, of which it doesn't own. Then there are the rights to use various key brands, including Craftsman and Kenmore, that are held in a subsidiary backed by royalties -- meaning they wouldn't be available for sale. What's more is that as Sears sells off more and more assets, there will be less value in the event of a liquidation.

Continued weakness
During the most recent quarter, K-mart's sales were down 6.6% year over year, with comparable store sales down 2.2%. Wal-Mart and Target continue to eat into K-mart's sales, thanks to their effective use of groceries and consumables to drive traffic.

Sears domestic stores had sales falling 3%, but posted a positive comparable store sales growth of 0.2%. The reason for the positive comp was the inclusion of two months of comparable store sales for Lands' End. Sears has been slowly losing market share to Home Depot and Lowe's on the appliance front. As the company sees more market share losses in the appliance space, it will make the potential spinoff of its Warranty business more difficult – which is one of the fell stand-alone businesses it has left to spinoff, with the other being its Auto Center business.

Sears Canada saw sales fall 17.2% and witnessed a 7.6% decline in comparable store sales. Things could have been worse here if not for the inclusion of operating results of stores that the company had already sold.

Bottom line
Trading at a P/S ratio of just 0.12, some investors are attracted to Sears as a deep value stock. But it's traded at or below a P/S of 0.15 for the last three years. It's tough to call a company with no clear plan for a turnaround a value investment. Retail operations continue to struggle, losing market share to major competitors and it has spun off some of its most profitable investments. The greatest turnaround are always the most unexpected, thus, it's going to be a long row to hoe for Sears and Lampert. 

Best Buy In Telecom Isn't AT&T

One of the highly anticipated mergers from earlier this year never came to fruition, but the company that was left out in the cold could still be a great investment. AT&T (NYSE: T  ) ended its pursuit of European telecom Vodafone (NASDAQ: VOD  ) , ultimately deciding to buy DirecTV.

Shares of Vodafone had a nice run last year after the company sold its stake in Verizon Wireless to Verizon Communications (NYSE: VZ  ) . Investors continued bidding up shares on the expectation that AT&T would buy the company. But shares of Vodafone are now down 13%, while Verizon and AT&T are up 4% and 5%, respectively.

One billionaire still loves Vodafone
Billionaire John Paulson made nearly $15 billion shorting subprime loans during the financial crisis. He specializes in merger arbitrage, focusing on takeovers. Lately, his merger arbitrage focus has been in the telecom sector, where mergers and acquisitions have picked up.

Among Paulson's notable wins have been Sprint Corporation after a bidding war erupted between Softbank and Dish Network. John Paulson also owned shares of MetroPCS before it was bought by T-Mobile. Paulson's other winner was Leap Wireless after AT&T bought the company. The fact that AT&T didn't buy Vodafone isn't discouraging to Paulson, though. He remains Vodafone's largest shareholder, with a $1 billion stake in the company. In digging deeper, it's easy to see why Paulson still loves Vodafone.

Vodafone going forward
After selling its stake in Verizon Wireless, Vodafone has been focused on rewarding its shareholders. Its 7.6% dividend yield is well above its major peers. Vodafone remains a global telecom giant. The company has operations in Europe, Africa, the Middle East, and in Asia. Many analysts now expect the company to use its strong balance sheet to go on an acquisition binge. The company will turn from prey to predator.

The potential to break into emerging markets is a big positive for Vodafone. It's doing this with partner agreements, which includes its partnership with Polkomtel to boost its Eastern Europe exposure. This allows Vodafone to expand into new faster-growing markets with little investment.

The U.S. leaders
AT&T's move to buy up DirecTV for nearly $50 billion is a big shift from the potential Vodafone acquisition, where AT&T will now have a big presence in the pay-TV market versus the European telecom market. The move will add 20 million subscribers to its video customer base, versus the current 5.7 million pay-TV customers that AT&T has. Assuming the deal goes through, AT&T will be the second-largest wireless company, and second largest pay-TV company.

Meanwhile, Verizon got a greater stronghold on the U.S. wireless market with its February acquisition of the remaining 45% stake in Verizon Wireless, which was previously owned by Vodafone. The $130-billion acquisition was one of the largest in telecom industry history.

How shares stack up
Vodafone trades at the highest P/E ratio of the three, but its P/S and P/B ratios are the lowest. Meanwhile, Vodafone has the lowest debt-to-equity ratio, and more than 25% of its market cap is covered by cash on the balance sheet. Verizon's dividend yield comes in the lowest of the three, at 4.3%, with AT&T at 5.1%. Vodafone is an impressive 7.6%.

Bottom line
The global rise in wireless is a big positive for the major telecom companies. While the likes of AT&T and Verizon are major players in the somewhat saturated U.S. market, Vodafone is looking to grow its presence in the faster-growing European markets. For investors looking for a high-yield investment in the telecom space, Vodafone is worth a closer look.

Value In A Beaten Down Industry

The latest gossip in the beaten-up apparel retail space has Express Inc. (NYSE: EXPR  ) potentially going private. This is big news for an industry that has been hit hard by changing fashion trends and high teen unemployment.

Express has been just one of many underperforming apparel retailers. The stock was down 32% for the first five months of the year, but then jumped 20% in a single day back in June on the news that private equity company Sycamore Partners had taken a 9.9% stake in the company. Sycamore has shown interest in taking the retailer private.

An Express buyout
The brokerage firm Stifel Nicolaus has said the final price of an Express buyout could be between $20.50 and $24.50. That still offers over 20% upside from current levels. Stifel also believes that there is a 50% chance the deal will go through.

Express has been getting rid of unsold inventory and leaning more on factory stores, yet analysts still expect its sales and profits to decline for the next two quarters. In its most recent quarterly announcement, the company slashed its annual earnings forecast from $1.23 per share to $0.90 per share.

It's worth noting that Sycamore is no stranger to the struggling apparel industry. It recently bought up a stake in teen retailer Aeropostale. Last year it bought Hot Topic for $533 million and was in negotiations to buy Billabong International.

Another private equity buyout?
Chico's FAS  (NYSE: CHS  ) gained $280 million in value after a report by the Financial Times said that the women's clothing retailer was considering a buyout led by private equity.

Hypothetically, if the company demands a 30% premium on its current market cap of $2.36 billion, its value would be $3.06 billion ($20 per share). According to experts, the company's strong cash flows and growth prospects for brands like Soma lingerie and White House Black Market make it a strong candidate for a private equity buyout.

Chico's CEO David Dyer was previously involved in the sale of Tommy Hilfiger, so management has some experience with buyouts. One of Express' big problems is that it has been unable to meet its earnings estimates for the last six quarters. During the first quarter of 2014, its revenue rose by 1.6%, but earnings fell by 26% to $39 million ($0.26 per share).

A potential buyout in coastal apparel
Quiksilver (NYSE: ZQK  ) has been one of the hardest-hit apparel companies. Its stock dropped over 42% in a single day after it reported a loss of $0.15 per share for the quarter, when a loss of $0.02 per share had been forecast. Its sales of $408.2 million came in below analysts' consensus estimate of $449 million and the company does not expect improvement anytime soon.

Monness, Crespi, Hardt recently downgraded the stock because the wholesale channel is proving to be more difficult to negotiate than previously expected. However, Citigroup has speculated on whether VF Corp will acquire Quiksilver because its acquisition of Timberland has now been fully integrated. VF is also currently seeking new acquisition opportunities.

After VF's bid for Billabong did not work out, Quiksilver might be a likely prospect because it has a strong brand for girls and women called Roxy. Citi believes that Quiksilver could have a value of between $900 million and $1 billion, which is above its current market capitalization of $623 million.

Bottom line
With some major hedge funds getting involved in apparel retail over the last few months, the space appears to have some deep value opportunities for risk-tolerant investors. However, some companies are closer to a deal than others are. Certain companies are in better financial shape as well. Of the companies above, Express looks the best positioned and it's worth a closer look.