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Should You Imitate This Insider Purchase at Kohl’s Corporation (KSS)?

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A recent filing with the SEC has disclosed that Nina Vaca, a member of the Board of Directors at Kohl’s Corporation (NYSE:KSS), purchased about 1,600 shares of the company’s stock in late June at prices ranging from about $49.50 to about $51 per share. This brought her total direct holdings of the stock to 7,400 shares (when unvested shares of restricted stock are included) and therefore represents a considerable percentage increase in her exposure to the company. In theory, insiders should avoid such increases in their company-specific risk in favor of diversifying their wealth, unless they have a good deal of confidence in the stock. This is our explanation for why stocks bought by insiders tend to narrowly outperform the market (read our analysis of studies on insider trading).

The department store started off the first quarter of its fiscal year (a quarter which ended in early May) on a somewhat poor note. Kohl’s experienced a 1% decrease in revenue compared to the same period in the previous fiscal year, including a decline in same-store sales. While earnings per share was up 5%, this was entirely due to a reduction in share count as net income fell from its levels a year ago. The company generated a little over $300 million in cash from operations, most of which was returned to shareholders through buybacks and dividends.

Kohl’s Corp. call options active as shares sell offCurrently, Kohl’s Corporation (NYSE:KSS) trades at 12 times trailing earnings. We’re not opposed to share repurchases, but would generally prefer for them to not be the sole source of EPS growth and certainly business at Kohl’s is not looking too good at this point. Still, this is a low P/E multiple and so market expectations for the company are low. With a beta of 0.6, and a good-but-not-great dividend yield of 2.8%, Kohl’s Corporation (NYSE:KSS) is also something of a defensive stock.

We monitor hedge fund activity- and develop investing strategies- by tracking quarterly 13F filings from hundreds of hedge funds (for example, we’ve found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). According to our database, Ron Gutfleish’s Elm Ridge Capital initiated a position of about 490,000 shares in Kohl’s Corporation (NYSE:KSS) during the first quarter of 2013 (check out Elm Ridge’s stock picks).

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