Were Hedge Funds Right About Warming Up To Target Corporation (TGT)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Target Corporation (NYSE:TGT) based on that data and determine whether they were really smart about the stock.

Target Corporation (NYSE:TGT) was in 54 hedge funds’ portfolios at the end of March. TGT shareholders have witnessed an increase in hedge fund interest recently. There were 53 hedge funds in our database with TGT positions at the end of the previous quarter. Our calculations also showed that TGT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Heebner of Capital Growth Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the latest hedge fund action encompassing Target Corporation (NYSE:TGT).

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

At Q1’s end, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the fourth quarter of 2019. By comparison, 50 hedge funds held shares or bullish call options in TGT a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is TGT A Good Stock To Buy?

The largest stake in Target Corporation (NYSE:TGT) was held by Renaissance Technologies, which reported holding $651.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $413.1 million position. Other investors bullish on the company included Adage Capital Management, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Rip Road Capital allocated the biggest weight to Target Corporation (NYSE:TGT), around 6.15% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, designating 4.47 percent of its 13F equity portfolio to TGT.

As industrywide interest jumped, some big names have jumped into Target Corporation (NYSE:TGT) headfirst. Junto Capital Management, managed by James Parsons, created the largest position in Target Corporation (NYSE:TGT). Junto Capital Management had $35.8 million invested in the company at the end of the quarter. Robert Bishop’s Impala Asset Management also initiated a $33.2 million position during the quarter. The following funds were also among the new TGT investors: Steven Boyd’s Armistice Capital, Benjamin A. Smith’s Laurion Capital Management, and Ian Simm’s Impax Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Target Corporation (NYSE:TGT) but similarly valued. These stocks are Brookfield Asset Management Inc. (NYSE:BAM), CNOOC Limited (NYSE:CEO), Activision Blizzard, Inc. (NASDAQ:ATVI), and Boston Scientific Corporation (NYSE:BSX). All of these stocks’ market caps resemble TGT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAM 37 886441 3
CEO 11 178140 -3
ATVI 101 3053805 25
BSX 59 3081420 5
Average 52 1799952 7.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 52 hedge funds with bullish positions and the average amount invested in these stocks was $1800 million. That figure was $2209 million in TGT’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 11 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 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on TGT as the stock returned 29.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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