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Hedge Funds Have Never Been This Bullish On Kohl’s Corporation (KSS)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Kohl’s Corporation (NYSE:KSS) and determine whether hedge funds had an edge regarding this stock.

Kohl’s Corporation (NYSE:KSS) investors should pay attention to an increase in enthusiasm from smart money lately. Kohl’s Corporation (NYSE:KSS) was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KSS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a peek at the recent hedge fund action regarding Kohl’s Corporation (NYSE:KSS).

How have hedgies been trading Kohl’s Corporation (NYSE:KSS)?

Heading into the third quarter of 2020, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 62% from the first quarter of 2020. On the other hand, there were a total of 29 hedge funds with a bullish position in KSS a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Kohl’s Corporation (NYSE:KSS), which was worth $72 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $40.7 million worth of shares. Citadel Investment Group, D E Shaw, and Millennium Management 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 Stormborn Capital Management allocated the biggest weight to Kohl’s Corporation (NYSE:KSS), around 3.53% of its 13F portfolio. Ellington is also relatively very bullish on the stock, setting aside 1.31 percent of its 13F equity portfolio to KSS.

Now, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most valuable position in Kohl’s Corporation (NYSE:KSS). Balyasny Asset Management had $20.5 million invested in the company at the end of the quarter. Steven Boyd’s Armistice Capital also made a $15.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Louis Bacon’s Moore Global Investments, Kerr Neilson’s Platinum Asset Management, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.

Let’s now take a look at hedge fund activity in other stocks similar to Kohl’s Corporation (NYSE:KSS). We will take a look at Brooks Automation, Inc. (NASDAQ:BRKS), AVITA Therapeutics, Inc. (NASDAQ:RCEL), Xerox Holdings Corporation (NYSE:XRX), Cohen & Steers, Inc. (NYSE:CNS), Energizer Holdings, Inc. (NYSE:ENR), SVMK Inc. (NASDAQ:SVMK), and Stifel Financial Corp. (NYSE:SF). All of these stocks’ market caps resemble KSS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRKS 15 163794 -3
RCEL 2 30930 -1
XRX 35 679082 -6
CNS 21 86926 1
ENR 25 277086 4
SVMK 33 309964 4
SF 21 158221 4
Average 21.7 243715 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $337 million in KSS’s case. Xerox Holdings Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand AVITA Therapeutics, Inc. (NASDAQ:RCEL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Kohl’s Corporation (NYSE:KSS) is more popular among hedge funds. Our overall hedge fund sentiment score for KSS is 90. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately KSS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KSS were disappointed as the stock returned 2.9% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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