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Wal-Mart Stores, Inc. (WMT), Lowe’s Companies, Inc. (LOW) & More: The Smart Money’s Top 10 Retail Plays

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In August, hundreds of hedge funds and other major investors filed their 13Fs for the second quarter of 2013 (disclosing many of their long equity positions as of the end of June) if they had not already done so. Conventional wisdom is that the information in these filings is too out of date to be of any use, but we think that there are in fact a number of ways for mom-and-pop investors to improve their investing by studying 13Fs. First, we’ve actually shown that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and implemented this in a portfolio which has beaten the market by 33 percentage points in the last 11 months; we think that more strategies are possible as well.

Another potential use is to see overall which stocks hedge funds tend to like in different areas- not necessarily to blindly follow these picks, but to get an idea of broad trends in how they are approaching different industries and sectors. We have gone through our database and here are the ten retailers which the largest number of hedge funds and the other notable investors we track reported owning in their most recent filings:

Wal-Mart Stores, Inc. (NYSE:WMT) edged Dollar General (NYSE:DG) for the #1 spot in our list. At 14 times trailing earnings, Wal-Mart Stores, Inc. (NYSE:WMT) is close to being a value stock though the discount retailer did have a rough start to the current fiscal year with sales and net income up only slightly. Warren Buffett’s Berkshire Hathaway owned $3.7 billion worth of Wal-Mart Stores, Inc. (NYSE:WMT) at the end of June (see Buffett’s stock picks).

54 filers in our database reported a position in Dollar General, though this figure was down from 61 three months earlier. Earnings growth notably slowed for the company in its fiscal Q1 versus a year ago. Dollar stores are popular picks among “Tiger Cub” funds, including billionaire Stephen Mandel’s Lone Pine Capital which owned about 14 million shares of Dollar General (find Mandel’s favorite stocks).

LONE PINE CAPITAL

Home improvement stores have been a fairly common way to play a strengthening housing market, helping make The Home Depot, Inc. (NYSE:HD) these filers’ third favorite retailer. Due to this optimism Home Depot’s trailing P/E has climbed to 22. Fisher Asset Management, an asset management firm managed by billionaire Ken Fisher, was one major shareholder in Home Depot (research more stocks Fisher owns).

Right behind Home Depot is peer Lowe’s Companies, Inc. (NYSE:LOW). While Lowe’s is valued at a small premium to its peer, it experienced double-digit gains on both top and bottom lines in its most recent quarter compared to the same period in the previous year. Billionaire Ken Griffin’s Citadel Investment Group moved heavily into the stock during Q1 and closed June with 5.5 million shares (check out more stocks Griffin likes).

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