I turned bearish on Sears about 30 years ago after failing to find a clerk when I tried to exchange a power tool in their San Francisco store.  The legendary retailer has fallen into a pit of despair since, failing to modernize its stores and to stay abreast of the competition.  However, it turns out that there may new life for the holding company that owns Sears and K-Mart. My friend Porter Stansberry makes the case that, under CEO Edward Lampert, Sears Holding Corp is reshaping itself into a giant re-insurance company, much as Warren Buffett did with Berkshire Hathaway in the 1970s.   “He’s preparing to spin off most of the retail assets,” says Porter, “while holding onto the best 120 locations and the brand names. Meanwhile, he’s personally buying the shares from his investment fund (ESL). So, he’s not saying anything about the real earnings power of the business going forward.”

Porter considers his research on SHLD some of the best work he’s ever done, and he has graciously allowed me to share it with Rick’s Picks readers. If you’re interested in the full report, click here for a copy. Meanwhile, I’ll recommend taking a speculative stake with the purchase of some out-of-the-money call spreads. Specifically, I’ll suggest buying the Jan 100.42 – 115.42 ‘vertical’ 40 times for 0.20, good-till canceled. If this proves too difficult I’ll adjust the price — or perhaps try to leg it on in the weeks ahead, assuming we can do so for even-money or better.

From a technical standpoint, SHLD appears to have built a good base for a move most immediately to the 95.41 target shown. That would represent a 50% increase from current levels.  By my runes, the go-ahead would come on a monthly close above the midpoint Hidden Pivot ‘red line’ at 66.91, or a decisive intraday move of perhaps $1.50-$2.00 above it.  There would be further potential to 122.92 thereafter, but the very long-term charts justify projections above $200.

Since a comparison to Berkshire Hathaway is made above, there is one cautionary note that needs to be sounded: Buffett built Berkshire when there were still plenty of great stocks to buy.  These days, however, The Sage of Omaha is saying that Berkshire is finding it very difficult to find good, let alone exceptional, values in the stock market.  Lampert, who is surely no smarter than Buffett, is apt to experience the same problem as he attempts to build an empire using Sears Holding Corp.  At best, it will be no easy trick. ______ UPDATE (October 11):  SHLD has sold off so steeply that the spread is now an easy buy for less than I’d suggested.  It is too easy, actually, and that’s why I’m going to suggest going further out in time, with a more ‘difficult’ spread that will give us better value. Accordingly, I’ll recommend buying the June 85.42-95 spread 40 times for 0.28, good till canceled. The spread has a delta value of 5, so you should lower your bid by 0.05 cents for each $1 move below the current price of $54, or raise it by 0.05 for each $1 increase above $54. _______ UPDATE (October 15): Barron’s did a hit-job on SHLD over the weekend, citing a report that would value the company’s real estate holdings far more conservatively than some bulls have valued them. Based on the numbers, the low-end valuation for the stock would be in the low $50s. Investors seem to have taken the news in stride, at least so far. _______ UPDATE (October 22, 9:43 p.m. EDT): Buyers have generated the first usable impulse leg we’ve seen on the 30-minute chart (see inset) since the stock got drubbed earlier this month.  It’s subtle, as you can see, indicating a ‘buy’ at 55.78. and a D target at 57.56. With yesterday’s push at the bell above the midpoint resistance, the stock signaled more upside over the very near-term to D, at least. _______ UPDATE (October 23, 8:21 p.m. EDT):  The stock is obviously unready to move, although you could probably scalp it profitably while you wait for something, anything to happen. Although yesterday’s rally, for one, did not make to the ‘D’ target of the ‘camo’ pattern I’d suggested trading, it did get to the Hidden Pivot midpoint where you could have exited at least half of any position with a profit of $59 per round lot.