Target Fires Holiday Salvo At These Retailers But Hedge Funds Like The Competition More

Target Corporation (NYSE:TGT) has launched another salvo in its continuing battle with other retail giants, including Wal-Mart Stores, Inc. (NYSE:WMT), Amazon.com, Inc. (NASDAQ:AMZN), Best Buy Co Inc (NYSE:BBY), and Macy’s, Inc. (NYSE:M) for the consumer spending this coming holiday season. Today, the retailer unveiled an updated price match policy aimed at 29 of its rivals, including the four mentioned above. Of the five retail store stocks we highlight in this discussion, however, hedge funds only liked three in the April-to-June quarter.

We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 118%, outperforming the S&P 500 by over 60 percentage points (see more details here).

Under the updated policy of Target Corporation (NYSE:TGT), it will now match the price, both in stores and on Target.com, of rivals Wal-Mart Stores, Inc. (NYSE:WMT), Amazon.com, Inc. (NASDAQ:AMZN), Best Buy Co Inc (NYSE:BBY), and Macy’s, Inc. (NYSE:M). Other competitors singled out by Target are: Babiesrus.com, BedBathBeyond.com, BN.com, Buybuybaby.com, Costco.com, CVS.com, Diapers.com, DicksSportingGoods.com, Drugstore.com, Gamestop.com, JCPenney.com, Kmart.com, Kohls.com, Newegg.com, Officedepot.com, Petco.com, Petsmart.com, Samsclub.com, Sears.com, SportsAuthority.com, Staples.com, Toysrus.com, Ulta.com, Walgreens.com, and Wayfair.com. In the past, Target only matched prices among its different stores. Furthermore, Target extended its price adjustment period from seven days to 14 days. It appears that the price wars for the upcoming holiday shopping rush are heating up, so let’s analyze how these five companies stack up against each other based on how hedge funds handled their stocks in the second quarter.

Unfortunately for Target Corporation (NYSE:TGT), it was not favored by hedge funds in the recent quarter. Even as the number of hedge funds long on the firm increased by one to 44, it saw the total value of hedge funds’ investments dwindle by 44.53% to $1.14 billion, or just 2.20% of the firm’s shares, despite just a 1% decline in the stock’s price during that time. Donald Chiboucis’ Columbus Circle Investors owned 2.6 million Target shares by the end of June, down by 9% quarter-over-quarter.

Wal-Mart Stores, Inc. (NYSE:WMT), on the other hand, was given the nod by the world’s best money managers in the second quarter. By the end of said period, its stock saw a 13.76% decline, but total hedge fund holdings decreased by only 7.46% in value, to $8.52 billion, representing 3.70% of the firm’s shares. There were also 65 hedge funds among those we track that ended the April-to-June quarter with long positions in Wal-Mart, up by two from the previous quarter. Warren Buffett’s Berkshire Hathaway was the largest shareholder of the retail giant on June 30, holding 60.38 million shares.

Meanwhile, Amazon.com, Inc. (NASDAQ:AMZN) was even more liked by hedge funds from April-to-June. Its stock saw a healthy 16.66% appreciation in the second quarter, but total hedge fund holdings increased by an even greater 24.46% to $10.46 billion, 5.20% of Amazon’s outstanding shares. More hedge funds also wanted a piece of Jeff Bezos’ pie, as there were 103 hedge funds long on the stock by June 30, up by seven from March 31. Ken Fisher’s Fisher Asset Management held 2.49 million Amazon shares by the end of June, up by 2% from the end of March.

If there were seven more hedge funds long Amazon by the end of the second quarter, there were seven less hedge funds long Best Buy Co Inc (NYSE:BBY), bringing the members of this group down to 34. The company’s shares slumped by 13.71% in said period and the total hedge fund investment in the firm sunk by an even greater 20.38%, down to $707.23 million or 6.10% of the firm’s shares. Cliff Asness’ AQR Capital Management held 7.0 million Best Buy shares by the end of June, up by 19% on the quarter.

Macy’s, Inc. (NYSE:M) is last but definitely not least. In fact, among the five stocks we are discussing, it was the most liked by hedge funds in the second quarter. There were 61 hedge funds long Macy’s by June 30, up by six from March 31. They also increased the value of their total holdings by 82.29% to $2.2 billion or 9.70% of the company’s stock, a very bullish sign given the relatively timid 3.94% growth of the stock during the period. Senator Investment Group, led by Doug Silverman and Alexander Klabin, ended June with 6.5 million Macy’s shares, a stake bought in the second quarter.

Disclosure: None