NEW YORK (Real Money) -- Paying up for shares that have already made big moves can be tempting. Short-term traders prefer stocks in uptrends, as they have positive momentum. Investors, though, should wait for real value before committing their finite capital.
How can you recognize value? Look for price-to-earnings ratios well below average for the same stock and a yield, if the company pays dividends, that is higher than typical from that company.
Data on these metrics can be found on numerous sources. I prefer Value Line research sheets because they present 10 to 15 years of information on just one sheet of paper.
At its 2007 peak, KSS traded for an excessive multiple while paying no dividend. The stock got somewhat pricey again near the end of 2009. Buying or holding at those high valuations proved painful.
Kohl's quote on Wednesday was still lower than at 2007's pinnacle.
There were many chances to own Kohl's at discounted P/Es. The best of those periods added yields above 3% to the mix. Few people were loving the stock when it clearly was on the bargain rack.
Traders like it now, at close to $76, simply because it has moved up about $27 from its 2014 bottom. Getting in now might be too late. The current valuation offers less than great value based on historical data.
A return to average metrics would suggest $10 to $13 per share of risk.
Wal-Mart exhibited a similar, somewhat differently timed, pattern. Traders who paid up for WMT in the summer of 2008 as a defensive play ended up needing 3½ years to start making money.
Those who ventured in near 2012's top are just marginally ahead today, almost three years later. Momentum chasers who played Wal-Mart on Jan. 8, 2015, are sitting on greater than $12 per share paper losses.
It surely appeared boring to own WMT during 2010 and 2011, as improving fundamentals were not being rewarded. The coming move from under $48 in 2010 to north of $77 in 2012 made it exciting later on.
KORS hit $101 in February last year and were priced at 31 times trailing earnings.
On Wednesday, the same shares were offered at $61.93, just 14.9 times trailing earnings per share. Growth is slowing but the forward P/E on fiscal-year 2015 estimates (ends March 31, 2016) is the lowest ever on this debt-free company.
Before screaming that KORS will never recover, keep this in mind. Similarly hated Coach (COH) has rallied from $32.72 to $41.50 since last November on not even a trace of good news.
Neither KSS nor WMT looks cheap right now. Michael Kors has never been valued so nicely. Patient investors might wish to swap out of the leaders and into the laggards.
Editor's Note: This article was originally published at 11 a.m. EDT on Real Money Pro on April 23.
This article is commentary by an independent contributor. At the time of publication, the author was long KORS and short KORS January 2017 puts.