Hedge Funds’ #1 Stock Picks in Real Estate, Airlines, Beer & More

Rising interest rates have yet to be the tonic that soothes hedge funds’ returns, as anticipated. Hedge funds on average have posted gains of just 1.9% in 2018 according to HFR, a small fraction of the 10.6% returns enjoyed by the broader market.

In the past week alone, three of the hedge funds tracked by Insider Monkey (Tourbillon Capital, Criterion Capital, and Highfields Capital Management) have closed their doors. Jason Karp‘s Tourbillon, which opened in 2013 to impressive 21% gains has struggled since 2016, losing 13.8% last year and another 3.2% this year through September 28.

The continuing lack of strong performance from hedge funds has had no effect on Insider Monkey’s market-beating “best performing hedge funds” strategy, which is only getting better with age. This strategy has rewarded subscribers with incredible 107.5% returns since its May 2014 inception, crushing the S&P 500 by over 40 percentage points. This hedge fund strategy’s small number of quarterly picks feature the most common stocks found among only the top 100 performing hedge funds each quarter. In our May 16 newsletter, customer service platform Zendesk Inc (NYSE:ZEN) and pharmaceutical company FibroGen Inc (NASDAQ:FGEN), each of which gained over 10% during the following 2.5 months, were among the seven stock picks for that quarter.

Below, we’ll look at the consensus top stock picks in several industries when using the entirety of Insider Monkey’s hedge fund database, which consisted of 645 hedge funds which filed 13Fs for the June 30 reporting period.

Hedge Funds’ #1 Automotive Stock Pick: General Motors Company (NYSE:GM)

Number of Hedge Fund Shareholders of GM (as of June 30): 59

Value of Hedge Funds’ Holdings in GM (as of June 30): $6.19 billion

General Motors Company (NYSE:GM) is the top auto stock among hedge funds, with 59 owning it on June 30, down slightly from 64 on March 31. That placed GM far ahead of rival Ford Motor Company (NYSE:F), which was the next most popular auto stock with just 32 hedge fund shareholders. Warren Buffett‘s Berkshire Hathaway is one of the biggest GM bulls, owning a position of 51.39 million GM shares worth over $2 billion.

General Motors Company (NYSE:GM)’s stock market woes in 2018 have hit another major GM bull hard, billionaire David Einhorn of Greenlight Capital. Einhorn’s fund has lost a dismal 25.7% this year, mirroring the amount lost by GM itself, which accounted for over 26% of Greenlight’s 13F portfolio at the end of Q2. GM shares currently trade at just 6x forward earnings, which looks dirt cheap when one considers the growth potential looming in the autonomous vehicle market, which Intel Corporation (NASDAQ:INTC) has predicted could be a $7 trillion industry by 2050. General Motors Company (NYSE:GM) is building a leading position in autonomous vehicles through major partnerships with companies like SoftBank and Honda, and will launch its first autonomous ride-hailing vehicle next year.

Hedge Funds’ #1 Airline Stock Pick: Delta Air Lines, Inc. (NYSE:DAL)

Number of Hedge Fund Shareholders of DAL (as of June 30): 66

Value of Hedge Funds’ Holdings in DAL (as of June 30): $6.50 billion

Delta Air Lines, Inc. (NYSE:DAL) is the most popular airline stock, being owned by 66 hedge funds on June 30, down from 73 at the end of March. United Continental Holdings Inc (NASDAQ:UAL) ranked second, being owned by 42 shareholders. Wayne Cooperman‘s Cobalt Capital Management raised its Delta Air Lines position by 136% to 502,862 shares as of June 30.

Delta Air Lines, Inc. (NYSE:DAL) recently hiked its baggage fees by 20% to $30 per bag, part of a broader industry initiative to offset rising fuel prices. Fears that Congress would implement a mandate targeting the fair usage of such fees were relieved last month, when plans to do so were dropped. That puts Delta in a position to capitalize on strong traffic and capacity trends in the industry going forward. Delta Air Lines, Inc. (NYSE:DAL)’s traffic and capacity have each risen by at least 3.5% in each of the past three months.

On the next page we’ll look at the top stock picks among hedge funds from three different industries, including retail.

Hedge Funds’ #1 Beer Stock Pick: Constellation Brands, Inc. (NYSE:STZ)

Number of Hedge Fund Shareholders of STZ (as of June 30): 62

Value of Hedge Funds’ Holdings in STZ (as of June 30): $6.02 billion

Constellation Brands, Inc. (NYSE:STZ) easily tops major North American beer makers Molson Coors Brewing Co (NYSE:TAP) and Anheuser Busch Inbev NV (NYSE:BUD) for top spot among beer stocks. A total of 62 hedge funds were long Constellation Brands on June 30, compared to meager tallies of 19 for Molson Coors and 21 for Anheuser Busch, both of which also lost hedge fund support in Q2 as beer sales contract slightly in North America and margins stagnate. Michael Lowenstein‘s Kensico Capital owned the largest Constellation Brands, Inc. (NYSE:STZ) position among the funds in our system on June 30, amounting to 4.28 million shares.

Constellation Brands, Inc. (NYSE:STZ) shares have climbed back into positive territory for the year after sliding to 52-week lows in mid-August. One of the biggest catalysts pushing shares higher over the past two months has been Constellation Brands’ $4 billion investment in Canadian cannabis company Canopy Growth. The deal allows Constellation to test cannabis-infused non-alcoholic beverages in Canada, which has the potential to be a huge growth market, while also giving the company the option to take a controlling stake in Canopy Growth at a future date.

Hedge Funds’ #1 Real Estate Stock Pick: Lennar Corporation (NYSE:LEN)

Number of Hedge Fund Shareholders of LEN (as of June 30): 63

Value of Hedge Funds’ Holdings in LEN (as of June 30): $3.76 billion

Lennar Corporation (NYSE:LEN) is hedge funds’ favorite real estate stock, being owned by 63 of the investment firms tracked in our database as of June 30. That easily toppled the closest rival D.R Horton (DHI), which was owned by 36 hedge funds on the same date. Matthew Knauer and Mina Faltas’ Nokota Management opened a new position in Lennar during the second quarter, which contained 272,475 shares at the end of the quarter.

Shares of homebuilders have slumped in 2018 and Lennar Corporation (NYSE:LEN)’s shares have been no exception, falling by over 33% this year. Despite a hot economy, the housing market has cooled off considerably of late, with monthly sales falling on a year-over-year basis in each of the past six months as rising mortgage rates and homebuilding costs have tempered consumer enthusiasm for home ownership. Lennar Corporation (NYSE:LEN) is discussing the sale of its real estate lending unit Rialto Capital with private equity firm Stone Point Capital, in an effort to bolster its core business.

Hedge Funds’ #1 Retail Stock Pick: Lowe’s Companies, Inc. (NYSE:LOW)

Number of Hedge Fund Shareholders of LOW (as of June 30): 56

Value of Hedge Funds’ Holdings in LOW (as of June 30): $3.72 billion

Lowe’s Companies, Inc. (NYSE:LOW) upsets mega retailer Walmart Inc (NYSE:WMT) to hold down the top spot among retail stocks. 56 hedge funds were long Lowe’s on June 30, down from 72 at the end of March. Despite the large decline in hedge fund ownership during Q2, Lowe’s remained just ahead of Walmart, which was owned by 52 hedge funds on June 30, and home improvement rival Home Depot Inc (NYSE:HD), which was also owned by 52 funds.

Bill Ackman‘s Pershing Square opened a 7.72 million-share position in Lowe’s Companies, Inc. (NYSE:LOW) during Q2 and has been amply rewarded for the move thus far, with shares having jumped by nearly 25% since he revealed his $1 billion position in the company. Ackman has said that Lowe’s has similar upside potential under new CEO Marvin Ellison as one of his most successful past investments, Canadian Pacific Railway, did under its Ackman-appointed CEO. Ellison, who previously served in upper management positions at Home Depot, has been busy reworking Lowe’s Companies, Inc. (NYSE:LOW) executive structure to increase management’s efficiency.

Disclosure: None