Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Target Corporation (NYSE:TGT) changed recently.
Target Corporation (NYSE:TGT) investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that TGT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a peek at the fresh hedge fund action regarding Target Corporation (NYSE:TGT).
What does smart money think about Target Corporation (NYSE:TGT)?
At the end of the third quarter, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TGT over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Target Corporation (NYSE:TGT), with a stake worth $444.2 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $301.1 million. Holocene Advisors, D E Shaw, and Millennium Management 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 Peconic Partners allocated the biggest weight to Target Corporation (NYSE:TGT), around 7.09% of its 13F portfolio. Lomas Capital Management is also relatively very bullish on the stock, dishing out 4.96 percent of its 13F equity portfolio to TGT.
As industrywide interest jumped, some big names have been driving this bullishness. Lomas Capital Management, managed by Daniel Lascano, established the most outsized position in Target Corporation (NYSE:TGT). Lomas Capital Management had $47.9 million invested in the company at the end of the quarter. William Harnisch’s Peconic Partners also made a $30.5 million investment in the stock during the quarter. The other funds with brand new TGT positions are Benjamin A. Smith’s Laurion Capital Management, Alexander Mitchell’s Scopus Asset Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Target Corporation (NYSE:TGT) but similarly valued. We will take a look at General Motors Company (NYSE:GM), Takeda Pharmaceutical Company Limited (NYSE:TAK), Prologis Inc (NYSE:PLD), and Vodafone Group Plc (NASDAQ:VOD). This group of stocks’ market values are closest to TGT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GM | 68 | 6375993 | 19 |
| TAK | 28 | 1243754 | 1 |
| PLD | 27 | 360500 | 3 |
| VOD | 19 | 685397 | 8 |
| Average | 35.5 | 2166411 | 7.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $2166 million. That figure was $2073 million in TGT’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 19 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 calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on TGT as the stock returned 100.4% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
