Department stores and specialty retailers get a lot of attention in the media as good investments because they cater to the upper middle class – the section of society that is relatively less affected by the recession and has still some disposable income, but still shops at malls instead of designer boutiques. But, if you want a good investment, look to where the middle class and the unemployed shop – discount stores.Their ranks have been swelling in the past couple of years as unemployment benefits run out before the unemployed can find jobs. Many skilled workers are underemployed and had to take lower paying jobs. These people are increasingly shopping at discount stores now.
Discount stores appeal to a much larger volume of customers, and make up in quantity of sales what they might lack in individual sales volume. As a result, they move very differently from other stocks. Most notably, companies in this industry tend to have betas that are a fraction of the market’s volatility. With historically high unemployment rates and no quick recovery in sight it isn’t too late to invest in discount stores.
Here is a list of the top discount stores amongst hedge funds. Why hedge funds? They are great because they have access to all the best research, and they report their top holdings once a quarter so it is easy to keep track of what they are buying – like these 7 stocks:
Wal-Mart Stores, Inc. (WMT): Of the 300+ hedge funds we track, 41 were invested in WMT at the end of the third quarter, up from 40 at the end of the second quarter. The total volume of hedge fund investment in the company slipped from $4.31 billion at the end of June to $4.12 billion at the end of September. Warren Buffett’s Berkshire Hathaway had nearly $2.03 billion invested in WMT at the end of the third quarter. Boykin Curry’s Eagle Capital Management and Ken Fisher’s Fisher Asset Management are also fans of the company.
Target Corp. (TGT): Hedge fund investment in TGT increased during the third quarter, from $1.33 billion across 36 funds at the end of June to $1.49 billion over 37 funds at the end of September. Jonathon Jacobson’s Highfields Capital Management had $291.79 million in WMT after increasing its holding in the company by +98% in the third quarter. TGT is also a top pick for Larry Robbins’ Glenview Capital.
Family Dollar Stores, Inc. (FDO): The number of hedge funds invested in FDO slipped from 30 at the end of the second quarter to 29 at the end of the third quarter, but total hedge fund investment in the company declined only marginally, moving from $1.799 billion at the end of June to $1.793 billion at the end of September. Bill Ackman’s Pershing Square is a big fan of FDO. The fund had over 9.6% of its portfolio invested in the company at the end of the third quarter, in a position worth roughly $579.21 million. And, Ackman isn’t the only hedge fund manager with a large stake in FDO. Nelson Peltz’s Trian Partners has nearly 13.5% of its portfolio invested in the company.
Dollar General Corp. (DG): Hedge fund investment in DG increased dramatically in the third quarter. It went from having 19 hedge funds invested in the company at the end of June to having 28 funds invested at the end of September. Total hedge fund investment in the company also increased, going from $1.17 billion at the end of June to $1.75 billion at the end of September. Stephen Mandel’s Lone Pine Capital had $597.03 million in DG at the end of the third quarter, while Warren Buffett’s Berkshire Hathaway had $169.82 million in the company after upping its stake by +200%.
Dollar Tree, Inc. (DLTR): Hedge fund investment in DLTR also increased in the third quarter. Investment in the company went from $1.05 billion spread across 27 hedge funds at the end of June to $1.14 billion over 27 funds at the end of September. Stephen Mandel’s Lone Pine Capital and Jim Simons’ Renaissance Technologies both increased their position in DLTR significantly during the third quarter.
Costco Wholesale Corp. (COST): Total hedge fund investment in COST went from $679.77 million over 21 hedge funds at the end of the second quarter to $883.08 million across 25 funds at the end of the third quarter. Warren Buffett’s Berkshire Hathaway is a fan. It had $355.89 million invested in the company at the end of September. Ken Griffin’s Citadel Investment Group and Jim Simons’ Renaissance Technologies are both fans of COST.
BJ’s Wholesale Club, Inc. (BJ): Hedge fund investment in BJ fell from $561.99 million spread across 30 funds at the end of the second quarter to $494.03 million over 20 funds at the end of the third quarter, but that doesn’t mean that some of the top hedge fund managers didn’t increase their positions in the company. Cliff Asness’ AQR Capital Management upped its stake in BJ by +439% in the third quarter, ending September with a stake in the company worth $97.26 million. Jim Simons’ Renaissance Technologies also upped its stake in the company during the third quarter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.