7 Department Stores Stocks That Hedge Funds Are Crazy About

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Includes: DDS, JCP, KSS, M, SHLD, SKS, TJX, XRT
by: Insider Monkey

Department stores may seem like the sort of thing an investor bets on around the holiday season, but if you think that department store stocks are just for the holidays, think again. Retail sales have been recovering recently and SPDR S&P Retail ETF (NYSEARCA:XRT) gained 9% so far in 2011, beating the overall market comfortably. Retail sales are expected to increase 3.5% year-over-year in November-December period this year. Hedge funds noticed this trend too, making large bets in the sector. We track more than 300 long/short equity hedge funds. Here are the top retail stocks hedge funds are crazy about:

Macy’s, Inc. (NYSE:M): Of the 300+ hedge funds we track, 44 owned positions in M at the end of the third quarter, down from 48 at the end of the second quarter. The total volume of hedge fund investment also decreased, going from $1.64 billion at the end of June to $1.16 billion at the end of September, but that doesn’t mean that everyone is bearish on the company – Lee Ainslie’s Maverick Capital and Jean-Marie Eveillard’s First Eagle Investment Management both initiated new positions in M during the third quarter.

TJX Companies, Inc. (NYSE:TJX): Hedge fund investment in TJX also declined across the board in the third quarter. The total number of hedge funds invested in TJX fell from 27 at the end of June to 24 at the end of September, and the total volume of hedge fund investment in TJX fell from $618.77 million to $420.98 million. However, some hedge fund managers are actually bullish on the company. Michael Karsch’s Karsch Capital Management opened a new position in TJX during the third quarter while Jeffrey Vinik’s Vinik Asset Management upped its stake in the company by +240%.

J. C. Penney Co., Inc. (NYSE:JCP): Hedge fund investment in the company did fall somewhat from the second quarter to the third quarter. There were 27 hedge funds invested in the company at the end of June, compared to 23 at the end of September. Total hedge fund investment in the company also fell, from $1.87 billion at the end of the second quarter to $1.29 billion at the end of the third quarter. Interest in JCP may have waned but the company is a major investment for Bill Ackman’s Pershing Square. The activist hedge fund had over 17% of its 13F portfolio in the company at the end of the third quarter.

Kohls Corp (NYSE:KSS): The number of hedge funds invested in KSS increased during the third quarter, moving from 19 at the end of June to 21 at the end of September. The total volume of hedge fund investment in KSS did decrease in that same period, moving from $438.76 million at the end of the second quarter to $256.52 million at the end of the third quarter, but some of the biggest hedge funds were unanimous in taking a bearish view of the company. For instance, Lee Ainslie’s Maverick Capital opened a new $79.45 million stake in the company during the third quarter.

Saks, Inc. (NYSE:SKS): Hedge fund investment in SKS increased dramatically in the third quarter. Just 16 hedge funds had positions in the company at the end of the second quarter, compared to 19 at the end of the third quarter. Total hedge fund investment in the company also increased dramatically, moving from $87.27 million at the end of the second quarter to $150.15 million at the end of the third quarter. Mason Hawkins’ Southeastern Asset Management was bullish on SKS during the third quarter, opening a $119.11 million stake in the company.

Sears Holdings Corp (NASDAQ:SHLD): The value of hedge fund investments in SHLD did decrease from $5.06 billion at the end of the second quarter to $4.04 billion at the end of the third quarter, and the number of hedge funds invested in the company did also decrease from 17 at the end of June to 14 at the end of June. A four billion dollar hedge fund position is nothing to sneeze at, but most of the position is owned by Eddie Lampert’s ESL Investments. Lampert's position was valued at $2.8 billion. Unfortunately SHLD is down more than 50% since its October highs and lost more than 25% on Tuesday after announcing disappointing sales in Sears and K-Mart stores. Lampert lost more than half a billion dollars in less than 24 hours. The other big loser in SHLD is Bruce Berkowitz with a $900+ million position in the stock at the end of September. Murray Stahl's Horizon Asset Management also had $161 million invested in SHLD at the end of September. The other hedge fund positions are $51 million or less in size (see details). Clearly SHLD was the worst retail stock and it ranks near the bottom of our list.

Dillards, Inc. (NYSE:DDS): Hedge fund investments in DDS decreased across the board during the third quarter. The number of hedge funds invested in the company dropped from 18 at the end of June to 13 at the end of September. The total volume of hedge fund investment in the company also went down, moving from $398.77 million at the end of the second quarter to $224.33 million at the end of the third quarter. The decrease may be significant, but plenty of hedge funds stayed put during the third quarter. Mason Hawkins’ Southeastern Asset Management neither added to nor decreased its $162.03 million position in DDS 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.