How do we determine whether Target Corporation (NYSE:TGT) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Target Corporation (NYSE:TGT) was in 40 hedge funds’ portfolios at the end of the fourth quarter of 2018. TGT investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. There were 42 hedge funds in our database with TGT positions at the end of the previous quarter. Our calculations also showed that TGT isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s view the new hedge fund action encompassing Target Corporation (NYSE:TGT).
Hedge fund activity in Target Corporation (NYSE:TGT)
At the end of the fourth quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TGT over the last 14 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Target Corporation (NYSE:TGT) was held by AQR Capital Management, which reported holding $565.5 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $253.1 million position. Other investors bullish on the company included Citadel Investment Group, Alkeon Capital Management, and D E Shaw.
Seeing as Target Corporation (NYSE:TGT) has experienced a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of hedge funds who were dropping their full holdings by the end of the third quarter. Interestingly, John Tompkins’s Tyvor Capital said goodbye to the biggest investment of the 700 funds monitored by Insider Monkey, totaling close to $55 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital was right behind this move, as the fund said goodbye to about $24.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Target Corporation (NYSE:TGT) but similarly valued. These stocks are Delta Air Lines, Inc. (NYSE:DAL), Kinder Morgan Inc (NYSE:KMI), Prudential Financial Inc (NYSE:PRU), and The Royal Bank of Scotland Group plc (NYSE:RBS). All of these stocks’ market caps are closest to TGT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DAL | 73 | 6625539 | 6 |
| KMI | 48 | 1658607 | -2 |
| PRU | 31 | 516818 | -2 |
| RBS | 3 | 26762 | -3 |
| Average | 38.75 | 2206932 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $2207 million. That figure was $1210 million in TGT’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 3 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on TGT, though not to the same extent, as the stock returned 17% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
