Investors shouldn’t bet against Kohl’s
Jim Cramer, best known for his “Mad Money” show on CNBC, has a message for investors betting against Kohl’s Corp. — get out while you still can.
Cramer, a former hedge fund manager, closed his show on July 22 speaking about the remarkable surge in Kohl’s stock price. Trading was fueled by online chatter which turned Kohl’s into a “meme stock.”
“Kohl’s didn’t shoot up nearly 38% today because of its deal with Sephora; it wasn’t about its relationship with Amazon either… and it certainly wasn’t Kohl’s Cash or some of its store brands even as I begrudgingly admit that I like them,” Cramer said. “No. It was all about the short position.”
Cramer was referring to investors betting that Kohl’s shares will fall.
Of the available Kohl’s shares to be traded, nearly 50% are short positions investors that are betting against the company and will make money when the stock goes down. If the stock goes up, the firms with shorts against Kohl’s need to pay money to keep their position.
He said that the online chatter talking up the Kohl’s had the effect of hurting short sellers and suggestion that it was intentional.
“Whenever you have such a huge short position it’s easy for buyers to get together and orchestrate a short squeeze,” Cramer said. “To which I say, what the heck do the shorts … think they’re doing here?”
Cramer said that Menomonee Falls-based retailer wasn’t a great fit for investors hoping for a stock price decline.
Kohl’s balance sheet “isn’t all that bad” and shouldn’t be shorted as much as it is, said Cramer who called the short sellers “moronic.”
“Kohl’s might not be great, but it isn’t terrible either,” Cramer said. “For the hedge funds it’s almost as dumb as shorting GameStop in 2021.”
GameStop’s stock price experienced a wild surge when the seemingly failing retailer saw its price grow from $2 and $3 to more than $80 when people on forums like Wall Street Bets on Reddit started buying the stock in 2021.
The stock increase caused trading to stop on the platform Robinhood. Several hedge funds recorded massive losses, including Melvin Capital which lost billions of dollars, leading to its closure.
Cramer theorized that Kohl’s is in a similar situation as GameStop — not because of its retail performance but because of the giant short position against the company.
“Kohl’s was a textbook example of a stock that had become perfect for the GameStop playbook,” Cramer said adding the firms with short positions should have cashed out when the stock was around $6.
“The shorts have made a killing over the past couple of years on this one… the shorts have clearly overstepped their boundary with Kohl’s. They’ve run into a buzzsaw of their own creation. Even now I think they’d be wise to cover their short and move on before they have another GameStop on their hands.”
Cramer ended his show by issuing some advice to the hedge funds shorting Kohl’s:
“Cover and move on.”