Monday, November 4, 2013

Kohl's Upgrade (Why you should never follow analyst recommendations)

Hooray, UBS has upgraded Kohl's.

Kohl’s Upgraded at UBS 
UBS reported that it has raised its rating on Kohl’s Corporation (KSS) from “Neutral” to “Buy,” and has given the company a $69 price target. This price target suggests a 14% increase from the stock’s current price of $56.85. Analysts have upgraded the stock due it its turnaround strategy and operating improvement. KSS currently has a dividend yield of 2.46%.

Great news right?  Well, sure, for those of us who've been holding the stock for many months/years, yes.  For new investors, not so much.  Here is a one year price chart for KSS:

Barron's printed an article last weekend about Kohl's (see previous post on this), and since then, the stock is up 12%.  The Chump IRA bought shares almost exactly a year ago after some bad news and analyst downgrades, then added to the position a few days later on a further dip.  Since then, I've been re-investing the dividends.  At today's price above, I'm ahead 34.8% on the KSS investment.

Kohl's is still trading below fair value, so I'm holding the position, but adding now after the recent run-up in price is much more risky than doing your own research and buying when the news is bad, and the stock is down; pretty much the opposite of the what the analysts are recommending!  Analysts add stocks to the recommended lists after they've run up in price.  That way, when they advertise, they can make claims like "Our list of recommended stocks is up X% year to date, and up X% over a one year period."  Technically true, but they don't mention when they recommended, nor do they give performance numbers since they recommended the stocks!  What a racket.



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