2022 has been a headline-packed year for Kohl’s (NYSE:KSS).
KSS fell into a slump in late November after initially spiking on its blowout third-quarter earnings report on November 18. However, the stock came back to life in late January — but it had little to do with its fundamentals. Rather, it was reports that two firms had reached out with offers to buy out the discount clothing retail giant.
Specifically, Acacia Research offered to pay Kohl’s $64 per share and private equity firm Sycamore offered to purchase Kohl’s at about $65 per share. Reports noted that both firms would like to sell the company’s real estate to increase funds with a partnership with Oak Street Real Estate Capital.
After the news broke on January 24, KSS shares surged 32%.
These two offers came on the heels of news that activist investor Macellum Capital Management, who had about a 5% stake in the company, was pushing for Kohl’s management to consider selling the company. The firm did not mince words in its shareholder letter to Kohl’s:
“While the Board has spent a significant amount of shareholders’ capital vigorously defending itself and pointing to the momentum the business was experiencing in early 2021, it now seems clear that Kohl’s was only benefiting from the economy reopening from the depths of the pandemic.”
Macellum Capital Management was also “vexed by management’s lack of urgency and instance that, after another disappointing year, shareholders should wait patiently until March to hear yet another strategy unveiled.” In addition, it accused Kohl’s of turning down buyout offers from investors.
It wasn’t until yesterday that Kohl’s confirmed that it had received “multiple preliminary indications of interest.”
The stock climbed slightly higher in the wake of the announcement, and I used that strength to cut ties with it in my Platinum Growth Club Model Portfolio and lock in our 28% gain in about five months. The reality is the company’s earnings momentum is tapping the brakes. For the first quarter, earnings are expected to slide 31.4% year-over-year and analysts have lowered earnings estimates by 22.6% in the past three months, which is always a red flag.
Couple this with the fact that KSS holds a C-rating for its Fundamental Grade and Quantitative Grade in Portfolio Grader, and it’s clear that the company’s fundamentals and institutional buying pressure are slowing down. So, it was time to sell.
Generally speaking, investing in a company solely on buyout rumors is never a good idea. Case in point: Nielson (NYSE:NLSN). Similar to Kohl’s, Nielson had a private equity firm, Elliot Management, calling for the company to consider a buyout given its poor performance in recent years.
The company surged nearly 40% last week after The Wall Street Journal reported that private equity firms were interested in purchasing Nielson for around $15 billion including debt. However, when Nielson announced yesterday that it had passed on the buyout offer, the stock plunged more than 16%.
Or we can consider Biogen (NASDAQ:BIIB), which has chopped around on acquisition rumors over the years. Most recently, Korea Economic Daily released an article in late December 2021 that Samsung Group was considering acquiring Biogen for $42 billion. BIIB popped 9.5% on the news and then fell sharply after Samsung Group dismissed the rumor.
The fact of the matter is a stock can grow increasingly volatile when its driving force is a buyout rumor, so I’d rather invest in companies with superior fundamentals that should appreciate with less volatility due to persistent institutional buying pressure. Right now, many of those fundamentally superior companies are coming from the energy, food, transportation and semiconductor industries, as they are profiting from the hideous inflation impacting the world economy.
I’m pleased to say that my Model Portfolio is chock-full of these types of companies, and I expect to add plenty more in the coming weeks. This includes nine exciting new buys I will be releasing in Friday’s Growth Investor Monthly Issue for April — which Platinum Growth Club subscribers will have full access to.
Let me also note that as a Platinum Growth Club subscriber, you’ll also have access to all of my stock services — Growth Investor, Breakthrough Stocks and Accelerated Profits — which totals to more than 100 stocks, as well as my Power Options service. This options service focuses solely on LEAPS (Long-Term Equity Anticipation Securities) call trades. These are a great investing vehicle to turbocharge your portfolio.
P.S. If you’d rather start small, I have you covered there, too. My Platinum Growth Club also comes with my exclusive Model Portfolio. I handpick all of my Model Portfolio recommendations from my different services, so you can rest assured that you’re always invested in the crème de la crème.
Now, if you decide to become a Platinum Growth Club subscriber now, you really couldn’t be joining at a better time. I just held my Platinum Growth Club Live Chat event yesterday afternoon, and we had a lot to talk about. I shared my latest market outlook, thoughts on the latest Federal Open Market Committee (FOMC) statement, why I’m still bullish on the electric vehicle (EV) revolution, and much more. I will be posting a recording and transcript of the event soon, so you’ll still be able to listen in.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Kohl’s Corporation (KSS)