Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Constellation Brands, Inc. (NYSE:STZ).
Is Constellation Brands, Inc. (NYSE:STZ) a good investment today? Prominent investors are betting on the stock. The number of bullish hedge fund positions went up by 6 recently. Our calculations also showed that STZ isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Lowenstein of Kensico Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a glance at the fresh hedge fund action encompassing Constellation Brands, Inc. (NYSE:STZ).
How are hedge funds trading Constellation Brands, Inc. (NYSE:STZ)?
At the end of the fourth quarter, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 62 hedge funds with a bullish position in STZ a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Kensico Capital held the most valuable stake in Constellation Brands, Inc. (NYSE:STZ), which was worth $799 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $352.1 million worth of shares. Point72 Asset Management, Balyasny Asset Management, and Two Creeks Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kensico Capital allocated the biggest weight to Constellation Brands, Inc. (NYSE:STZ), around 16.67% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, setting aside 8.63 percent of its 13F equity portfolio to STZ.
Now, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, established the biggest position in Constellation Brands, Inc. (NYSE:STZ). Point72 Asset Management had $120.8 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also initiated a $34.2 million position during the quarter. The other funds with new positions in the stock are Brian Scudieri’s Kehrs Ridge Capital, David Steinberg and Eric Udoff’s Marlowe Partners, and Joel Greenblatt’s Gotham Asset Management.
Let’s now review hedge fund activity in other stocks similar to Constellation Brands, Inc. (NYSE:STZ). We will take a look at Telefonica S.A. (NYSE:TEF), Thomson Reuters Corporation (NYSE:TRI), Newmont Corp (NYSE:NEM), and NXP Semiconductors NV (NASDAQ:NXPI). This group of stocks’ market values are similar to STZ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TEF | 9 | 36499 | 4 |
| TRI | 21 | 343733 | 0 |
| NEM | 34 | 990094 | -10 |
| NXPI | 80 | 3769335 | 18 |
| Average | 36 | 1284915 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1285 million. That figure was $1980 million in STZ’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 9 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on STZ, though not to the same extent, as the stock returned -13.1% during the first two months of 2020 (through March 9th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
