What Does The Smart Money Think of These Two Retailers in the Spotlight?

SUPERVALU INC. (NYSE:SVU) and Nordstrom, Inc. (NYSE:JWN) are in the news on the back of separate events. SUPERVALU CEO Sam Duncan has announced that he will retire on February 29, 2016 after three years on the job, while Nordstrom announced a one-time special dividend of $4.85 per share and an additional $1 billion in authorized share buybacks after closing the sale of its credit card portfolio to TD Bank U.S.A. for $1.8 billion in net proceeds. Shares of SUPERVALU have been quiet while shares of Nordstrom have rallied more than 3.5% in after hours trading on Thursday. Let’s take a closer look at the two companies and see if the smart money agrees with the market on any of them.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P 500 Index by around 60 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

SUPERVALU INC. (NYSE:SVU) CEO Sam Duncan said:

“SUPERVALU is a terrific organization and we have accomplished a great deal together during the past two and one-half years, I have thoroughly enjoyed working with our employees and thank them for all of their hard work and dedication. I am also looking forward to finishing the year strong and continuing to drive sales and cash through my remaining time at the Company, as well as providing time and support to ensure a smooth transition for my successor. After 46 years in the grocery and retail business, this is a bittersweet moment, but I am also excited by the opportunity to have more time for my family and personal interests following my retirement.”

Duncan’s successor will have his work cut out for him. Shares of the grocer are down 27% year to date as investors fret over impending internet competition and weak sector sales trends. SUPERVALU’s saving grace could be the potential spin off of its Save-A-Lot chain, which many investors think will unlock substantial shareholder value.  It is unclear whether SUPERVALU will spin off Save-A-Lot before Duncan retires, however.

Hedge funds are divided on SUPERVALU INC. (NYSE:SVU). Of the around 730 elite funds we track, 38 investors held stakes with an aggregate value of $394.25 million (representing 18.40% of the float) at the end of June, versus 36 funds and $580 million respectively on March 31. Conan Laughlin‘s North Tide Capital increased its position by 79% to 12.5 million shares, while David Shaw’s D. E. Shaw raised its stake by 21% to 6.32 million shares. Joel Greenblatt’s Gotham Asset Management trimmed its position by 5% to 5.58 million shares and David Harding’s Winton Capital Management cut its holdings by 37% to 1.45 million shares.

Shares of Nordstrom, Inc. (NYSE:JWN) are down 5% year-to-date as the stock consolidates its bull run from 2009. The company’s fundamentals have been solid, and management should be commended for focusing more on its core upscale retailing product. While the recent stock market weakness could soften demand, Nordstrom’s billion dollar buyback will improve EPS.  The stock looks attractive at 17 times forward earnings.

Hedge funds are bullish on Nordstrom, Inc. (NYSE:JWN). A total of 27 funds owned $945.62 million worth of stock (representing 6.70% of the outstanding stock) at the end of June, versus 34 funds and $957.6 million respectively a quarter earlier. Ken Griffin‘s Citadel Investment Group increased its equity position by 17% to 4.85 million shares and upped its ‘Call’ position in ‘Call’ by 11% and disclosed holding options underlying 467,4000 shares. Panayotis Takis Sparaggis’ Alkeon Capital Management upped its stake by 5% to 1.64 million shares too.

Disclosure: None