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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Kohl's Corporation (NYSE:KSS).
Is KSS a good stock to buy? Money managers were getting less optimistic. The number of long hedge fund positions were cut by 4 recently. Kohl's Corporation (NYSE:KSS) was in 38 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 42. Our calculations also showed that KSS isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Christopher Kiper of Legion Partners Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to take a gander at the new hedge fund action regarding Kohl's Corporation (NYSE:KSS).
Do Hedge Funds Think KSS Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards KSS over the last 21 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in Kohl's Corporation (NYSE:KSS). Arrowstreet Capital has a $84.8 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $78.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism encompass Ken Griffin's Citadel Investment Group, John Overdeck and David Siegel's Two Sigma Advisors and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Legion Partners Asset Management allocated the biggest weight to Kohl's Corporation (NYSE:KSS), around 4.12% of its 13F portfolio. Stormborn Capital Management is also relatively very bullish on the stock, designating 2.56 percent of its 13F equity portfolio to KSS.
Seeing as Kohl's Corporation (NYSE:KSS) has experienced falling interest from hedge fund managers, we can see that there were a few hedgies who were dropping their entire stakes heading into Q4. Intriguingly, Steven Boyd's Armistice Capital said goodbye to the largest investment of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $15.3 million in stock, and Brandon Haley's Holocene Advisors was right behind this move, as the fund sold off about $13.6 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to Kohl's Corporation (NYSE:KSS). These stocks are John Bean Technologies Corporation (NYSE:JBT), Community Bank System, Inc. (NYSE:CBU), LGI Homes Inc (NASDAQ:LGIH), GW Pharmaceuticals plc (NASDAQ:GWPH), Crane Co. (NYSE:CR), Atlantica Sustainable Infrastructure plc (NASDAQ:AY), and Werner Enterprises, Inc. (NASDAQ:WERN). This group of stocks' market valuations are similar to KSS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JBT,21,99713,5 CBU,10,16857,-5 LGIH,25,143573,3 GWPH,17,201230,-1 CR,29,201995,2 AY,11,63133,-1 WERN,32,336569,0 Average,20.7,151867,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $451 million in KSS's case. Werner Enterprises, Inc. (NASDAQ:WERN) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 10 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 78.1. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on KSS as the stock returned 112.6% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.