Doc's Diamonds

Kohl's

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KSS (Kohl's Corp.) is a well known retailer whose stock has not done well lately. I have mentioned in earlier posts about the weakness in retail stocks and how many strong retailers have seen their stocks drop to below or near 52 week lows. This price drop has been primarily driven by weakening retail numbers and an expectation of a slowing economy. Retailers do not do well when spending drops as the economy slows. The subprime mortgage crisis and dropping home prices further weakens the consumers ability to keep spending at previous levels.

This environment places strong downward stock price pressures on even the best retailers. Further, the fourth quarter is often the strongest for retail stocks and we have not reached that time of the year quite yet.

Knowing all of this, I had been tracking Kohl's to look for good entry points. I started building my position at a price of $56.23 and then purchased a small block higher and additional blocks at lower price points near Kohl's 52 week low (most recently at 53.91). My reason for choosing Kohl's as one of my retail choices is it's dominant position and reasonable prices. Their frequent "sales" reduce margin but drive growth. Kohl's 52 week price range is $52.50 to $79.55. At it's current price of $56.87, this represents a 39.88% upside potential to it's 52 week high.

The current risk for retail stocks is the FED funds rate. If the FED reduces interest rates, most retail stocks rally in response. In this case, Kohl's is almost certainly poised to rise as rapidly as other retailers and, in my opinion, more rapidly than most. However, if the FED stays put, retail stocks (and other sectors) will likely take a hit and fall in response. That is why I wanted to feature Kohl's in this post prior to the FED meeting.

We will soon see.

Doc