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Were Hedge Funds Right About Target Corporation (TGT)?

Abigail Fisher
·7 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether Target Corporation (NYSE:TGT) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Target Corporation (NYSE:TGT) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 54 hedge funds' portfolios at the end of the second quarter of 2020. Our calculations also showed that TGT 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). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as General Electric Company (NYSE:GE), NetEase, Inc (NASDAQ:NTES), and Duke Energy Corporation (NYSE:DUK) to gather more data points. Our calculations also showed that TGT 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.

According to most market participants, hedge funds are seen as unimportant, outdated financial vehicles of the past. While there are more than 8000 funds with their doors open today, Our researchers look at the leaders of this group, around 850 funds. It is estimated that this group of investors oversee most of the hedge fund industry's total capital, and by watching their inimitable investments, Insider Monkey has identified many investment strategies that have historically exceeded the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we're going to check out the new hedge fund action regarding Target Corporation (NYSE:TGT).

What does smart money think about Target Corporation (NYSE:TGT)?

At the end of June, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TGT over the last 20 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Target Corporation (NYSE:TGT). Renaissance Technologies has a $945.2 million position in the stock, comprising 0.8% of its 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $543 million position; 0.9% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish include John Overdeck and David Siegel's Two Sigma Advisors, Daniel Sundheim's D1 Capital Partners and Brandon Haley's Holocene Advisors. In terms of the portfolio weights assigned to each position Rip Road Capital allocated the biggest weight to Target Corporation (NYSE:TGT), around 5.32% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, designating 3.94 percent of its 13F equity portfolio to TGT.

Seeing as Target Corporation (NYSE:TGT) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few money managers who were dropping their entire stakes by the end of the second quarter. It's worth mentioning that Steven Boyd's Armistice Capital dropped the largest position of the 750 funds watched by Insider Monkey, worth about $16.7 million in stock. Charles Davidson and Joseph Jacobs's fund, Wexford Capital, also dumped its stock, about $10.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Target Corporation (NYSE:TGT). We will take a look at General Electric Company (NYSE:GE), NetEase, Inc (NASDAQ:NTES), Duke Energy Corporation (NYSE:DUK), Activision Blizzard, Inc. (NASDAQ:ATVI), CME Group Inc (NASDAQ:CME), Micron Technology, Inc. (NASDAQ:MU), and Chubb Limited (NYSE:CB). This group of stocks' market valuations are closest to TGT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GE,57,3186232,-1 NTES,38,4594320,-1 DUK,33,906929,-2 ATVI,97,3564560,-4 CME,60,2336649,-2 MU,84,4285777,-10 CB,40,1288157,7 Average,58.4,2880375,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.4 hedge funds with bullish positions and the average amount invested in these stocks was $2880 million. That figure was $3159 million in TGT's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 33 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. Our overall hedge fund sentiment score for TGT is 50.9. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. A small number of hedge funds were also right about betting on TGT as the stock returned 34.3% since the end of the second quarter (through 10/23) and outperformed the market by an even larger margin.

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

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