Why I sold Kohl’s Corporation despite a potential takeover deal

2022 has been a year full of headlines for Kohls (NYSE:KSS).

Source: Various Photographs/Shutterstock.com

KSS fell into a slump in late November after initially jumping on its third-quarter earnings report on Nov. 18. However, the stock came back to life at the end of January – but that had little to do with its fundamentals. On the contrary, it was reported that two companies had offered to buy the discount clothing retail giant.

Specifically, Acacia Research offered to pay Kohl’s $64 per share and private equity firm Sycamore offered to buy Kohl’s at around $65 per share. Reports noted that the two companies would like to sell the company’s real estate to raise funds through a partnership with Oak Street Real Estate Capital.

After the news broke on January 24, KSS shares jumped 32%.

Both of these offers followed news that activist investor Macellum Capital Management, which owned about 5% of the company’s equity, was pushing Kohl’s management to consider selling the company. The company didn’t mince words in its shareholder letter to Kohl’s:

“While the board spent a significant amount of shareholder capital to vigorously defend itself and underscore the momentum the company was enjoying at the start of 2021, it now seems clear that Kohl’s was only benefiting from the reopening of the economy from the depths of the pandemic.”

Macellum Capital Management was also “vexed by management’s lack of urgency and insistence that, after another disappointing year, shareholders should wait patiently until March to hear a new strategy unveiled.” In addition, he accused Kohl’s of refusing takeover offers from investors.

It was only yesterday that Kohl’s confirmed that it had received “several preliminary indications of interest”.

The stock rose slightly following 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 that corporate earnings momentum is holding back. For the first quarter, earnings are expected to fall 31.4% year over year and analysts have lowered earnings estimates by 22.6% in the past three months, which is always a signal of ‘alarm.

Add to that the fact that KSS holds a C rating for its fundamental rating and quantitative rating in portfolio binder, and it’s clear that corporate fundamentals and institutional buying pressure are easing. So it was time to sell.

Generally speaking, investing in a company solely on takeover rumors is never a good idea. Example : Nielsen (NYSE:NLSN). Similar to Kohl, Nielson had a private equity firm, Elliot Management, calling on the company to consider a buyout given its poor performance in recent years.

The company jumped nearly 40% in the past week after The Wall Street Journal reported that private equity firms were interested in buying Nielson for about $15 billion, including debt. However, when Nielson announced yesterday that it had forwarded the takeover offer, the stock plunged more than 16%.

Or we can consider biogenic (NASDAQ:IBIB), which has shut down acquisition rumors over the years. More recently, Korea Economic Daily published an article in late December 2021 that Samsung Group was considering acquiring Biogen for $42 billion. The BIIB jumped 9.5% on the news, then fell sharply after Samsung Group dismissed the rumor.

The thing is, a stock can become increasingly volatile when its driving force is a rumored takeover, so I prefer to invest in companies with higher fundamentals which should appreciate with less volatility due to continued institutional buying pressure. Currently, many of those fundamentally superior companies come from the energy, food, transport and semiconductor sectors, as they benefit from the horrendous inflation that is affecting the global economy.

I’m happy to say that my model portfolio is full of these types of businesses, and I expect to add many more in the coming weeks. This includes nine exciting new purchases i will go out on friday Growth investor April monthly issue — which Platinum Growth Club subscribers will have full access to.

Let me also note that as Platinum Growth Club subscriber, you will also have access to all my stock services — Growth investor, Revolutionary actions and Accelerated benefits – which totals more than 100 shares, as well as my Power Options service. This options service focuses only on buying LEAPS (Long-Term Equity Anticipation Securities) transactions. It is an excellent investment vehicle to boost your portfolio.

PS If you prefer to start small, I’ve got you covered too. My Platinum Growth Club also comes with my exclusive template portfolio. I select all of my model portfolio recommendations from my various departments, so you can rest assured that you are always invested in the best of the best.

Now, if you decide to become a Platinum Growth Club subscribed now, you really couldn’t join 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, my thoughts on the latest statement from the Federal Open Market Committee (FOMC), why I’m still bullish on the electric vehicle (EV) revolution, and much more. I’ll post a recording and transcript of the event soon, so you can always listen.

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Kohl’s Society (KSS)

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