Hedge Funds Have Never Been This Bullish On Target Corporation (TGT)

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is Target Corporation (NYSE:TGT) an attractive stock to buy now? The smart money is in a bullish mood. The number of bullish hedge fund positions went up by 10 in recent months. Our calculations also showed that tgt isn’t among the 30 most popular stocks among hedge funds. TGT was in 50 hedge funds’ portfolios at the end of March. There were 40 hedge funds in our database with TGT positions at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

John Overdeck of Two Sigma

Let’s check out the latest hedge fund action surrounding Target Corporation (NYSE:TGT).

Hedge fund activity in Target Corporation (NYSE:TGT)

At Q1’s end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TGT over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with TGT Positions

The largest stake in Target Corporation (NYSE:TGT) was held by Two Sigma Advisors, which reported holding $318.5 million worth of stock at the end of March. It was followed by Holocene Advisors with a $130.8 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and Citadel Investment Group.

As industrywide interest jumped, some big names were leading the bulls’ herd. Element Capital Management, managed by Jeffrey Talpins, created the most outsized position in Target Corporation (NYSE:TGT). Element Capital Management had $50.7 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $35.2 million position during the quarter. The other funds with brand new TGT positions are John Tompkins’s Tyvor Capital, Louis Bacon’s Moore Global Investments, and Matthew Tewksbury’s Stevens Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Target Corporation (NYSE:TGT). We will take a look at Aon plc (NYSE:AON), Metlife Inc (NYSE:MET), Energy Transfer L.P. (NYSE:ET), and Marathon Petroleum Corp (NYSE:MPC). This group of stocks’ market values resemble TGT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AON 39 2337303 -1
MET 31 1200695 7
ET 28 765288 -2
MPC 65 3263062 -7
Average 40.75 1891587 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $1892 million. That figure was $1393 million in TGT’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Energy Transfer L.P. (NYSE:ET) is the least popular one with only 28 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 calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on TGT, though not to the same extent, as the stock returned 1.1% during the same time frame and outperformed the market as well.

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