Hedge Funds Love These Five Consumer Non-Durables Stocks

The consumer non-durables industry, a branch of the consumer goods sector, includes companies that produce goods that are immediately used by a consumer and have a life span of less than three years. In the past three months, the consumer goods sector has advanced by roughly 4.5%, slower than the S&P 500 that rose by 7.5%. Year-to-date, however, it’s the opposite: the S&P 500 trails the sector index by more than one percentage point. In this article, we’ll take a look at five stocks from the consumer non-durables industry that top hedge funds liked the best heading into the second quarter.

At Insider Monkey, we track around 770 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Is Coca-Cola Poised For A Comeback?

Number five in this group is Warren Buffett‘s darling, The Coca-Cola Co (NYSE:KO). Despite increased criticism, Buffett’s faith in the soft drink giant is undeterred. Berkshire Hathaway’s stake in Coca-Cola was established back in 2001 and currently amounts to 400 million shares worth more than $18.5 billion. Investment legend Stanley Druckenmiller is also betting on The Coca-Cola Co (NYSE:KO) to grow again, having established a fresh position for his family office during the first quarter. According to its latest 13F filing, Duquesne Capital holds 1.39 million sahres of the fizzy drink giant. In general, hedge fund sentiment towards Coca-Cola improved significantly during the first three months, as the number of long positions rose to 62 from 51 at the end of December. 2016 first quarter sales were down again, as The Coca-Cola Co (NYSE:KO) was hurt by currency swings and the recent trends towards healthier drinks. The company posted $10.3 billion in revenue, down 4% year-over-year, and a profit of $0.34 per share. Coca-Cola is also looking to consolidate its European subsidiaries into one entity, a move that could lead to $375 million in savings in the first three years.

Snacks Business Still Hot

At the end of the first quarter, Mondelez International Inc (NASDAQ:MDLZ) could be found in the portfolio of 63 elite hedge funds, up from 57 a quarter before. Activist Nelson Peltz is heavily invested in this stock, having further increased his fund’s stake by 1% during the quarter. Trian Partners reportedly holds a little over 48 million shares worth $1.93 billion. Elsewhere, Bill Ackman’s Pershing Square dumped 48% of its stake in Mondelez International Inc (NASDAQ:MDLZ) and its latest 13F filing indicates ownership of 22.9 million shares, although in a letter to investors, Ackman said that the position was reduced for portfolio management reasons. The maker of Oreo cookies had a strong first quarter, but the management refrained from upping their forward guidance. Financial office Brian Gladden said demand is rather weak at the moment, especially in emerging markets and the strong dollar is not helping either. Mondelez International Inc (NASDAQ:MDLZ) said it is still on track to achieve 2% organic revenue growth and operating margins of 15% to 16% for the full year.

On the next page we’ll take a look at the top three stocks from this group.

The popularity of Nike Inc (NYSE:NKE) among elite hedge funds inched up during the first three months of this year and the number of long positions at the end of the quarter reached 64. However, collectively these funds hold just 3.5% of the company’s common stock. Alex Snow’s Lansdowne Partners is betting big on Nike Inc (NYSE:NKE), having further increased its holding of the stock. The fund reportedly holds 16.4 million shares worth $1.01 billion, a position that accounts for nearly 8% of its equity portfolio. Nike Inc (NYSE:NKE) had a strong fiscal third quarter and if its wasn’t for the strong dollar, it would have easily beaten analysts’ estimates. The company also strengthened its position in Asia, with future orders in China and Japan surpassing expectations. Future orders in Japans rose by 24%, while orders in the Greater China surged by 36%, signaling great appetite among Chinese customers despite a slowdown in China’s economy.

Pepsi Is Still Fizzy

Jim Simons’ mathematical models suggest PepsiCo, Inc. (NYSE:PEP) is headed up. Or at least that’s how the market interpreted Renaissance Technologies latest move in Coca-Cola’s competitor. The fund’s latest 13F filing shows an 109% increase in its holding of the stock to 3.73 million shares worth $382 million, the third largest position in its equity portfolio. Stanley Druckenmiller is playing it safe, having bought some PepsiCo, Inc. (NYSE:PEP) stock as well. His fund reportedly holds 353,300 shares valued at $36.2 million. In general, hedge funds are optimistic about the company’s prospects, as the number of funds invested rose to 65 by the end of March, from 58 reported three months earlier. Under pressure from activist investor Nelson Peltz, PepsiCo, Inc. (NYSE:PEP) has undergone some severe cost-cutting measures, while also boosting its advertising efforts. The company is still in the middle of a five-year cost-cutting plan that could increase earnings growth by more than 10%. Since he did not manage to break the company up, Peltz recently liquidated his $2 billion stake in PepsiCo.

Top Dog

Constellation Brands, Inc. (NYSE:STZ) also enjoyed a boost of popularity among the hedge funds tracked by Insider Monkey, having reached 71 long positions at the end of the first quarter. This makes the company the most popular ones from this group. These funds also hold a significant chunk of the company’s common stock, roughly 18% according to our database. Michael Lowenstein made a curious move to reduce his fund’s exposure to Constellation Brands, Inc. (NYSE:STZ), having trimmed Kensico Capital’s stake by 7% to 5.96 million shares worth $900 million at the end of the quarter. The company is considering a spin off for its Canadian wine business, which has been an important part of its income. The main reason behind this move is the company’s debt levels that have been significantly increased by the recent string of acquisitions. In December 2015, Constellation Brands, Inc. (NYSE:STZ) bought San Diego-based Ballast Point Brewing & Spirits, a craft beer maker, for $1 billion and has recently agreed to acquire Prisoner Wine Company’s super-luxury portfolio of five wine brands for $285 million.

Disclosure: none.