SEARS STOCK ONE TO HOLD AND WATCH

Sears, Roebuck and Co., a member of the Dow 30 Industrials with common stock traded on the New York Stock Exchange under the symbol S, is no stranger to reorganization and redirection. In fact, Roebuck was not around when the company went public and Sears only lasted a couple of years after the initial public offering. The most recent restructuring has left Sears focused on its retail business and its stock trading near the low for the year. There appears to be some value here for those that own the stock while others should keep a close watch on how the end-of-year numbers actually look.

Richard W. Sears was a Minnesota railway agent in 1886 when he bought a load of watches being returned to the maker. Six months later he moved to Chicago and started the R.W. Sears Watch Co. Alvah C. Roebuck joined the company in 1887, and the partners sold out in 1889. Two years later, they formed the mail-order business that in 1893 became Sears, Roebuck and Co.

When Roebuck left the company in 1895, Sears found two new partners, Aaron Nussbaum and Julius Rosenwald. Targeting farmers who had little access to retail merchandise, the company issued its first general catalog in 1896. Nussbaum left in 1901, and Sears went public in 1906 to finance expansion. Differences between Sears and Rosenwald led to Sears' departure in 1908, and Rosenwald became president.

Sears anticipated changes in rural life brought by the automobile and opened its first retail store in 1924. It brought out Allstate tires in 1925 and Allstate automobile insurance in 1931. The eruption of post-WWII sales led to 1945 sales greater than $1 billion, and sales doubled the next year. Sales of durable goods like major appliances began to slow in the early 1950s, and Sears shifted its emphasis to clothing.

High interest rates during the 1970s caused problems for retailers, so Sears elected to diversify into financial and other services. In 1981 the company acquired Dean Witter Reynolds, a stock broker, and Coldwell Banker, a real estate broker. It launched the Discover credit card in 1985. By 1992 Sears had been in and out of Advantis, a networking joint venture with IBM. IBM and Sears remained partners in Prodigy on line service which was founded in 1984.

Many other changes occurred during the 1990s. Coldwell Banker was sold, Dean Witter and Discover were spun off, the "Great American Wish Book" was discontinued and ownership of Sears Tower was transferred to a trust. Management changed with the retirement of CEO Edward Brennan in 1995. He was replaced by Arthur Martinez who was chairman and CEO of the Sears Merchandise Group. Under new leadership, management continued reducing diversification into non retail businesses to focus on Sears' real purpose, retailing. Allstate, the nation's largest property and casualty insurance company was spun off in 1995. Since then, the company has sold Prodigy and 60 percent of Grupo Carso in Mexico.

Sears is now more focused on its retail business. Its more than 800 mostly mall-based stores are catering to female customers. In addition, there are some 150 Sears HomeLife furniture stores, about 160 Sears Hardware stores and about 1,700 automotive stores. If you have noticed Sears' TV advertising, you are aware that it is also expanding its appliance repair and home improvement services.

Retail analysts seem to agree that Sears has made a successful transformation and is benefiting from its new focus on retail.

There seems to be no question that 1997 Christmas retail sales have been disappointing for the industry as a whole and Sears is no exception. The recent price of Sears' common stock ($45 1/4) should reflect this disappointment. With a price / earnings ratio of 14.65, this stock is priced below the market average which would suggest it should be priced over $70. However, my research indicates it should be priced closer to $50 1/2 in this market.

Though I do not own any Sears stock, I think those who do should hold on to it for now. It is trading near its low for the year and should not go much lower. I am not prepared to suggest adding this stock to your portfolio at this time, but I do think you should watch it closely. There is some value here that may improve as we get into the new year and see how well Sears does for the last quarter of 1997.

Dividend Reinvestment Plan: Yes

Web Site: http://www.sears.com

Bill Walker is President and CEO of Walkrich Investment Advisors and completes a market appraisal of over 5,000 common stocks each week. (573) 651-9196 (walkrich@mvp.net)

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.