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Should You Buy Kohl’s Corporation (KSS)?

We at Insider Monkey have gone over 700 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Kohl’s Corporation (NYSE:KSS) based on that data.

Kohl’s Corporation (NYSE:KSS) shareholders have witnessed an increase in hedge fund interest in recent months. Our calculations also showed that KSS isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

Let’s check out the key hedge fund action encompassing Kohl’s Corporation (NYSE:KSS).

How have hedgies been trading Kohl’s Corporation (NYSE:KSS)?

Heading into the fourth quarter of 2018, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in KSS at the beginning of this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

KSS_dec2018

The largest stake in Kohl’s Corporation (NYSE:KSS) was held by AQR Capital Management, which reported holding $478.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $100.4 million position. Other investors bullish on the company included Two Sigma Advisors, Samlyn Capital, and Millennium Management.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Kohl’s Corporation (NYSE:KSS) headfirst. Bodenholm Capital, managed by Per Johanssoná, created the most valuable position in Kohl’s Corporation (NYSE:KSS). Bodenholm Capital had $9.2 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also initiated a $7.8 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Richard Driehaus’s Driehaus Capital, and Thomas Bailard’s Bailard Inc.

Let’s also examine hedge fund activity in other stocks similar to Kohl’s Corporation (NYSE:KSS). We will take a look at Keysight Technologies Inc (NYSE:KEYS), Akamai Technologies, Inc. (NASDAQ:AKAM), Cna Financial Corporation (NYSE:CNA), and HCP, Inc. (NYSE:HCP). All of these stocks’ market caps are closest to KSS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KEYS 29 630589 3
AKAM 29 784777 1
CNA 15 80361 0
HCP 25 373733 5
Average 24.5 467365 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $954 million in KSS’s case. Keysight Technologies Inc (NYSE:KEYS) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 15 bullish hedge fund positions. Kohl’s Corporation (NYSE:KSS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard KEYS might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.

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