We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Target Corporation (NYSE:TGT) and determine whether hedge funds skillfully traded this stock.
Is Target Corporation (NYSE:TGT) undervalued? The best stock pickers were getting less bullish. The number of long hedge fund positions retreated by 17 in recent months. Target Corporation (NYSE:TGT) was in 49 hedge funds’ portfolios at the end of September. The all time high for this statistic is 78. Our calculations also showed that TGT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing Target Corporation (NYSE:TGT).
Ryan Tolkin, CIO of Schonfeld Strategic Advisors
Do Hedge Funds Think TGT Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TGT over the last 25 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GQG Partners was the largest shareholder of Target Corporation (NYSE:TGT), with a stake worth $1259.5 million reported as of the end of September. Trailing GQG Partners was Renaissance Technologies, which amassed a stake valued at $706 million. Arrowstreet Capital, AQR Capital Management, and Citadel Investment Group 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 Rip Road Capital allocated the biggest weight to Target Corporation (NYSE:TGT), around 5.32% of its 13F portfolio. GQG Partners is also relatively very bullish on the stock, dishing out 3.45 percent of its 13F equity portfolio to TGT.
Due to the fact that Target Corporation (NYSE:TGT) has faced declining sentiment from the smart money, logic holds that there is a sect of funds that elected to cut their full holdings in the third quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth about $263.8 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund dumped about $182.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 17 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Target Corporation (NYSE:TGT). We will take a look at Anheuser-Busch InBev SA/NV (NYSE:BUD), Block, Inc. (NYSE:SQ), The Estee Lauder Companies Inc (NYSE:EL), Rio Tinto Group (NYSE:RIO), HSBC Holdings plc (NYSE:HSBC), Caterpillar Inc. (NYSE:CAT), and Deere & Company (NYSE:DE). 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 |
|---|---|---|---|
| BUD | 11 | 826303 | -7 |
| SQ | 98 | 8884931 | 4 |
| EL | 49 | 4137243 | -1 |
| RIO | 20 | 1330364 | -1 |
| HSBC | 10 | 196426 | -1 |
| CAT | 46 | 4778511 | -16 |
| DE | 54 | 2530736 | 2 |
| Average | 41.1 | 3240645 | -2.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.1 hedge funds with bullish positions and the average amount invested in these stocks was $3241 million. That figure was $4350 million in TGT’s case. Block, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 10 bullish hedge fund positions. Target Corporation (NYSE:TGT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TGT is 29. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, TGT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TGT were disappointed as the stock returned -3.3% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.
Follow Target Corp (NYSE:TGT)
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Disclosure: None. This article was originally published at Insider Monkey.
