Were Hedge Funds Right About The TJX Companies, Inc. (TJX)?

In this article we will analyze whether The TJX Companies, Inc. (NYSE:TJX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is The TJX Companies, Inc. (NYSE:TJX) a buy right now? The smart money was becoming less confident. The number of bullish hedge fund bets were cut by 7 recently. The TJX Companies, Inc. (NYSE:TJX) was in 56 hedge funds’ portfolios at the end of June. The all time high for this statistic is 78. Our calculations also showed that TJX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 percentage points since March 2017 (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.

Gavin Saitowitz of Prelude Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. 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. 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 homepage. Now we’re going to take a look at the recent hedge fund action surrounding The TJX Companies, Inc. (NYSE:TJX).

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

At the end of the second quarter, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TJX over the last 24 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, D E Shaw was the largest shareholder of The TJX Companies, Inc. (NYSE:TJX), with a stake worth $448.3 million reported as of the end of June. Trailing D E Shaw was Alkeon Capital Management, which amassed a stake valued at $411.3 million. Holocene Advisors, GLG Partners, and Two Sigma Advisors 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 Broad Bay Capital allocated the biggest weight to The TJX Companies, Inc. (NYSE:TJX), around 11.37% of its 13F portfolio. Masterton Capital Management is also relatively very bullish on the stock, setting aside 7.94 percent of its 13F equity portfolio to TJX.

Judging by the fact that The TJX Companies, Inc. (NYSE:TJX) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of funds that elected to cut their full holdings in the second quarter. At the top of the heap, Gavin Baker’s Atreides Management said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, valued at about $97.8 million in stock. Renaissance Technologies, also sold off its stock, about $83.7 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 7 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The TJX Companies, Inc. (NYSE:TJX) but similarly valued. We will take a look at Cigna Corporation (NYSE:CI), Enbridge Inc (NYSE:ENB), The PNC Financial Services Group Inc. (NYSE:PNC), Brookfield Asset Management Inc. (NYSE:BAM), Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), FedEx Corporation (NYSE:FDX), and The Bank of Nova Scotia (NYSE:BNS). This group of stocks’ market valuations match TJX’s market valuation.

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As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $1507 million. That figure was $2387 million in TJX’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 14 bullish hedge fund positions. The TJX Companies, Inc. (NYSE:TJX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TJX is 62.4. 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 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately TJX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TJX were disappointed as the stock returned -2.5% since the end of June (through 10/29) 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 many of these stocks already outperformed the market since 2019.

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