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Were Hedge Funds Right About Target Corporation (TGT)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Target Corporation (NYSE:TGT) based on those filings.

Is Target Corporation (NYSE:TGT) the right investment to pursue these days? The smart money is turning less bullish. The number of bullish hedge fund bets were cut by 2 in recent months. Our calculations also showed that TGT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). TGT was in 53 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 55 hedge funds in our database with TGT positions at the end of the previous quarter.

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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

Keeping this in mind let’s take a glance at the recent hedge fund action surrounding Target Corporation (NYSE:TGT).

How are hedge funds trading Target Corporation (NYSE:TGT)?

At the end of the fourth quarter, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TGT over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the number one position in Target Corporation (NYSE:TGT), worth close to $727.2 million, accounting for 0.6% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $472.6 million position; 0.5% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass D. E. Shaw’s D E Shaw, and Rajiv Jain’s GQG Partners. In terms of the portfolio weights assigned to each position Voss Capital allocated the biggest weight to Target Corporation (NYSE:TGT), around 11.21% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, earmarking 6.95 percent of its 13F equity portfolio to TGT.

Seeing as Target Corporation (NYSE:TGT) has witnessed bearish sentiment from the smart money, logic holds that there exists a select few hedge funds who were dropping their entire stakes last quarter. Interestingly, Steve Cohen’s Point72 Asset Management dropped the largest investment of all the hedgies tracked by Insider Monkey, valued at close to $34.3 million in stock. Steven Boyd’s fund, Armistice Capital, also sold off its stock, about $25.7 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Target Corporation (NYSE:TGT). We will take a look at Canadian National Railway Company (NYSE:CNI), Zoetis Inc (NYSE:ZTS), Boston Scientific Corporation (NYSE:BSX), and Allergan plc (NYSE:AGN). This group of stocks’ market values match TGT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNI 29 2000657 0
ZTS 48 2230316 -5
BSX 54 3207627 2
AGN 86 9927657 2
Average 54.25 4341564 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 54.25 hedge funds with bullish positions and the average amount invested in these stocks was $4342 million. That figure was $2495 million in TGT’s case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 29 bullish hedge fund positions. Target Corporation (NYSE:TGT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately TGT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TGT investors were disappointed as the stock returned -15.1% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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