Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
Is Target Corporation (NYSE:TGT) a first-rate investment right now? The best stock pickers are turning less bullish. The number of bullish hedge fund positions were trimmed by 2 lately. Our calculations also showed that TGT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). TGT was in 53 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 55 hedge funds in our database with TGT positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s take a gander at the recent hedge fund action surrounding Target Corporation (NYSE:TGT).
What have hedge funds been doing with Target Corporation (NYSE:TGT)?
At the end of the fourth quarter, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the third quarter of 2019. On the other hand, there were a total of 40 hedge funds with a bullish position in TGT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Target Corporation (NYSE:TGT), which was worth $727.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $472.6 million worth of shares. D E Shaw, Citadel Investment Group, and GQG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Voss Capital allocated the biggest weight to Target Corporation (NYSE:TGT), around 11.21% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, earmarking 6.95 percent of its 13F equity portfolio to TGT.
Because Target Corporation (NYSE:TGT) has experienced falling interest from the smart money, it’s safe to say that there was a specific group of funds that decided to sell off their positions entirely last quarter. Interestingly, Steve Cohen’s Point72 Asset Management sold off the largest investment of the 750 funds monitored by Insider Monkey, totaling close to $34.3 million in stock, and Steven Boyd’s Armistice Capital was right behind this move, as the fund dropped about $25.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Target Corporation (NYSE:TGT). We will take a look at Canadian National Railway Company (NYSE:CNI), Zoetis Inc (NYSE:ZTS), Boston Scientific Corporation (NYSE:BSX), and Allergan plc (NYSE:AGN). All of these stocks’ market caps are similar to TGT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNI | 29 | 2000657 | 0 |
| ZTS | 48 | 2230316 | -5 |
| BSX | 54 | 3207627 | 2 |
| AGN | 86 | 9927657 | 2 |
| Average | 54.25 | 4341564 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.25 hedge funds with bullish positions and the average amount invested in these stocks was $4342 million. That figure was $2495 million in TGT’s case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 29 bullish hedge fund positions. Target Corporation (NYSE:TGT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately TGT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TGT investors were disappointed as the stock returned -18.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
