Target Corporation (NYSE: TGT) has been struggling in recent months as consumers continue to cut back on their spending. However, at least one investor believes there is substantial value hidden in the land underneath the retail stores. Billionaire activist William Ackman’s Pershing Square took a huge bet in the retailer, even establishing a separate fund to invest in it. Due to leverage, the fund fell more than 40% in January and remains down nearly 90% since inception, but the activist appears to remain confident in a recovery.

“While PSIV [the Target-only fund] and Target stock has declined materially, we still believe our fundamental investment case for Target stock will ultimately be realized, although not within the original timeframe we had initially estimated,” said Ackman in a letter dated February 5th. The poor timing is likely the result of a dramatically slowing economy that forced the company to reconsider making any major changes until there was more confidence in the marketplace.

Investors looking to get involved with Target by making this bet may want to consider a pairs trade with the S&P Retail ETF (NYSE: XRT). Purchasing a long Target position in the same dollar amount as a short Retail ETF position will result in a trade whereby the investor would make money when Target stock outperformed the retail sector but not drop when the overall retail sector declines. This offers downside protection with most of the upside remaining in tact.

Related Companies
Wal-Mart Stores Inc. (WMT)
Costco Wholesale Corporation (COST)
Dollar Tree, Inc. (DLTR)

The furnace fueling any economic recovery will likely be running on U.S. dollars if plans circulating in the government materialize. Luckily, world stock markets are still struggling and the dollar is seen as a safe-haven for money. The result has been extremely low Treasury yields during note auctions. However, the tables may turn sharply when the world’s economies begin to recover. The combination of trillions of new dollars in circulation along with the inevitable flight from the dollar will increase inflation.

One way to invest in this inevitable inflation is by purchasing Treasury Inflation Protected Securities, or TIPS. These safe government securities pay returns that are adjusted to the consumer price index in order to reduce inflation risk. The premiums on these bonds will therefore increase in line with rises in inflation. iShares Barclays TIPS Bond Fund ETF (NYSE: TIP) is an exchange traded fund that trades these TIPS and makes them more accessible for investors. Those confident in a bearish dollar may want to take a TIP!

Abigail Adams National Bancorp Inc. (NDAQ: AANB) received a $3.45 per share all cash takeover offer from an activist shareholder on January 29th, but investors don’t seem to be taking notice. PS D’Iberville Limited Partnership made the offer after the company agreed to and then subsequently rejected its request to review the firm’s books to conduct due diligence.

Here’s a copy of the letter:

Your letter dated January 28, 2008 (2009 is the correct date) is unacceptable.  Your letter, dated January 23 2009, specifically stated that P.S. D’IBERVILLE LIMITED PARTNERSHIP could inspect the items requested in our letter of September 26, 2008.  You confirmed, by telephone, that you would allow P.S. D’IBERVILLE LIMITED PARTNERSHIP to inspect the items requested and would not cancel the appointment.  P.S. D’IBERVILLE LIMITED PARTNERSHIP demands that you allow us to inspect all the items.  Given your unwillingness to allow us to review all of the books as previously indicated and your rejection of our past offers to assist, we are proposing instead that P.S. D’IBERVILLE LIMITED PARTNERSHIP pursue an acquisition of all the shares of Abigail Adams National Bancorp, Inc (AANB).  We propose a price of $3.45 all cash per share.  We have existing cash resources available to fund this transaction and are prepared to move as quickly as necessary.

We believe time is of the essence.  You have already wasted valuable time to increase shareholder value since our letter of August 19, 2008.  Your customers, regulators and employees will appreciate immediate action.  This non-binding proposal is subject to the negotiation of mutually satisfactory definitive agreements, regulatory approval, and the completion of customary due diligence, all of which could be progressed and finalized without delay.

We have already made our plane reservations to visit with you on Monday, Feb. 2, 2009.  Failure to confirm by Friday, January 30, 2009, at 4:00 pm that all the records requested in our September 26, 2008 letter will be available for our inspection will be construed to be a breach of your fiduciary duty and obligations pursuant to statute and we will not show up Monday, February 2, 2009.  If you choose not to let us review all of the materials on February 2, 2009, please let us know when we can complete our due diligence inspection.

It is important to remember that non-binding takeover offers are not guarantees, particularly when management doesn’t appear to be interested in selling the company. As a result, shares continue to trade at $2.15 per share despite the presence of a $3.45 per share offer. However, this could represent an opportunity for other activist investors are arbitreurs.

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Eagle Bancorp (EGBN)
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M&T Bank Corporation (MTB)