Legendary value investor Sir John Templeton said years ago, "If you wait to see the light at the end of the tunnel, you have already missed the bottom."
Kohl's (KSS) disappointed with its latest 4-week same store sales number. The shares got pounded, dropping $6.13 or (-11.98%) by 4 pm Thursday. Volume was 20.643 million shares, more than 6 times normal, in a daily range from $44.95 to $47.18.
If you listened to the CNBC pundits you'd think that "everybody" was selling. In reality there were exactly as many shares purchased as dumped. Buyers got a great price plus a bonus. KSS goes ex-dividend next Monday for 32-cents per share.
Did Thursday morning's report really merit a $1.5 billion haircut to the company's market value? No way. Kohl's has a great long-term record.
In the decade FY 2002 through FY 2011 revenues per share grew by 181.5%. EPS increased by 130%. Book value went up 153%.
Those numbers were good enough to earn high grades from Value Line in three out of four important categories.
The less than stellar grade for "price growth persistence" came only because Kohl's was trading for an outlandish 54x trailing earnings at its peak price of $78.80 back in early 2002. That renders KSS's only low mark meaningless.
Currently popular stocks like Home Depot (HD) and Lowe's (LOW) both now receive even lower Value Line ratings of 30th percentile in this category. Retail behemoth Wal-Mart (WMT) carries only a 40 ranking in its current value Line review.
The fleeting panic lows set in August 2010 and 2011 were just a shade below today's final quote. KSS is now about 5.1% off 2012's exact nadir.
Each of those scary-at-the-moment recent bottoms reversed very quickly. All three led to trading opportunities at $55 or above within a few months.
It appears that high frequency traders (HFT) like to target Kohl's for quick moves that scare nervous investors out at low points and draw momentum players in at tops. Many public shareholders fail to learn from the past and have been accommodating the HFTs.
Why not try something logical? Buy the dips along with the smart money.
Have other retailers turned on a dime? Sure. Think about Abercrombie & Fitch (ANF). The market's mood swung from euphoric to depressed and then back to positive. All within six months.
Consider how analysts and traders reacted to monthly swings in same store sales for teen retailer The Buckle (BKE). From March to June this year the stock dropped from almost $51 to $36.33. BKE closed Thursday at $51.50 and is set to pay a large special dividend before year-end.
Urban Outfitters (URBN) is another well-known name that fits this profile. Their shares gapped down to $23.42 last January before gapping up just as abruptly in August. URBN hit a September peak of $40.65. That represented a seven month move of + 73.6%.
Clearly, the retailing industry provides lots of steep sell-offs and huge rebounds. It takes courage in your convictions to hang in there or buy more when price action is intense. If you don't have a solid reason for owning the shares it's easy to doubt your own judgment.
Investors who determine that stocks like Kohl's are worth much more than their current quotes get the best bargains.
You don't need to catch the exact lows to make good profits. You do need to buy when others are panic selling and then be willing to wait for sanity to return.
History says that "normalcy" typically takes less than six months to achieve.
Kohl's better-than-bank-account dividend, excellent track record and low absolute valuation make taking a position now an easy decision.