Was The Smart Money Right About Piling Into Target (TGT)?

In this article we will take a look at whether hedge funds think Target Corporation (NYSE:TGT) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Target Corporation (NYSE:TGT) was in 78 hedge funds’ portfolios at the end of December. The all time high for this statistic is 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. TGT investors should be aware of an increase in hedge fund interest of late. There were 57 hedge funds in our database with TGT positions at the end of the third quarter. Our calculations also showed that TGT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a peek at the new hedge fund action regarding Target Corporation (NYSE:TGT).

Do Hedge Funds Think TGT Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 78 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 37% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TGT over the last 22 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Target Corporation (NYSE:TGT), which was worth $943.7 million at the end of the fourth quarter. On the second spot was D1 Capital Partners which amassed $634.7 million worth of shares. AQR Capital Management, Two Sigma Advisors, and D E Shaw 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 6.14% of its 13F portfolio. Stormborn Capital Management is also relatively very bullish on the stock, designating 4.86 percent of its 13F equity portfolio to TGT.

As aggregate interest increased, specific money managers were breaking ground themselves. Palestra Capital Management, managed by Andrew Immerman and Jeremy Schiffman, initiated the largest position in Target Corporation (NYSE:TGT). Palestra Capital Management had $126.4 million invested in the company at the end of the quarter. Steven Boyd’s Armistice Capital also made a $31.5 million investment in the stock during the quarter. The other funds with brand new TGT positions are Benjamin A. Smith’s Laurion Capital Management, Spencer M. Waxman’s Shannon River Fund Management, and Clint Carlson’s Carlson Capital.

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 Fidelity National Information Services Inc. (NYSE:FIS), Airbnb, Inc. (NASDAQ:ABNB), British American Tobacco plc (NYSE:BTI), Vale SA (NYSE:VALE), Deere & Company (NYSE:DE), Micron Technology, Inc. (NASDAQ:MU), and Mondelez International Inc (NASDAQ:MDLZ). All of these stocks’ market caps resemble TGT’s market cap.

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As you can see these stocks had an average of 57.9 hedge funds with bullish positions and the average amount invested in these stocks was $3873 million. That figure was $4065 million in TGT’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) 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 77.8. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on TGT as the stock returned 18.6% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.