Did Hedge Funds Drop The Ball On Constellation Brands, Inc. (STZ) ?

How do we determine whether Constellation Brands, Inc. (NYSE:STZ) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Is Constellation Brands, Inc. (NYSE:STZ) a buy here? Prominent investors are becoming less confident. The number of bullish hedge fund bets decreased by 24 recently. Our calculations also showed that STZ isn’t among the 30 most popular stocks among hedge funds. STZ was in 38 hedge funds’ portfolios at the end of the first quarter of 2019. There were 62 hedge funds in our database with STZ holdings at the end of the previous quarter.

In the eyes of most investors, hedge funds are assumed to be worthless, outdated investment tools of yesteryear. While there are greater than 8000 funds in operation today, Our experts hone in on the top tier of this club, approximately 750 funds. Most estimates calculate that this group of people direct the lion’s share of all hedge funds’ total capital, and by monitoring their best equity investments, Insider Monkey has deciphered several investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

Jeffrey Gates Gates Capital

We’re going to review the latest hedge fund action regarding Constellation Brands, Inc. (NYSE:STZ).

Hedge fund activity in Constellation Brands, Inc. (NYSE:STZ)

At the end of the first quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -39% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in STZ over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Of the funds tracked by Insider Monkey, Stephen Mandel’s Lone Pine Capital has the most valuable position in Constellation Brands, Inc. (NYSE:STZ), worth close to $864.8 million, corresponding to 5.1% of its total 13F portfolio. The second largest stake is held by Michael Lowenstein of Kensico Capital, with a $738.3 million position; 14.5% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism include Dan Loeb’s Third Point, Doug Silverman and Alexander Klabin’s Senator Investment Group and David Goel and Paul Ferri’s Matrix Capital Management.

Judging by the fact that Constellation Brands, Inc. (NYSE:STZ) has witnessed a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds who sold off their full holdings heading into Q3. Interestingly, Gabriel Plotkin’s Melvin Capital Management dropped the largest stake of all the hedgies watched by Insider Monkey, comprising about $437.7 million in stock, and Aaron Cowen’s Suvretta Capital Management was right behind this move, as the fund dumped about $167.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 24 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Constellation Brands, Inc. (NYSE:STZ) but similarly valued. We will take a look at Manulife Financial Corporation (NYSE:MFC), Canadian Natural Resources Limited (NYSE:CNQ), Ferrari N.V. (NYSE:RACE), and Red Hat, Inc. (NYSE:RHT). All of these stocks’ market caps are closest to STZ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MFC 16 323863 -4
CNQ 29 643752 5
RACE 28 1050992 0
RHT 66 5213219 1
Average 34.75 1807957 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1808 million. That figure was $2548 million in STZ’s case. Red Hat, Inc. (NYSE:RHT) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 16 bullish hedge fund positions. Constellation Brands, Inc. (NYSE:STZ) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on STZ as the stock returned 7.2% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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