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How Did Constellation Brands, Inc. (STZ) Compare Against Hedge Fund Darlings in 2019?

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Constellation Brands, Inc. (NYSE:STZ).

Constellation Brands, Inc. (NYSE:STZ) was in 41 hedge funds’ portfolios at the end of the third quarter of 2019. STZ has experienced an increase in support from the world’s most elite money managers recently. There were 38 hedge funds in our database with STZ positions at the end of the previous quarter. Our calculations also showed that STZ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a gander at the fresh hedge fund action regarding Constellation Brands, Inc. (NYSE:STZ).

What does smart money think about Constellation Brands, Inc. (NYSE:STZ)?

At the end of the third quarter, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards STZ over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STZ A Good Stock To Buy?

The largest stake in Constellation Brands, Inc. (NYSE:STZ) was held by Kensico Capital, which reported holding $872.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $191.6 million position. Other investors bullish on the company included Renaissance Technologies, Two Creeks Capital Management, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position Kensico Capital allocated the biggest weight to Constellation Brands, Inc. (NYSE:STZ), around 16.69% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, dishing out 11.44 percent of its 13F equity portfolio to STZ.

As one would reasonably expect, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest position in Constellation Brands, Inc. (NYSE:STZ). Balyasny Asset Management had $42.8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $15.3 million position during the quarter. The other funds with new positions in the stock are Elise Di Vincenzo Crumbine’s Stormborn Capital Management, Benjamin A. Smith’s Laurion Capital Management, and Minhua Zhang’s Weld Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Constellation Brands, Inc. (NYSE:STZ) but similarly valued. These stocks are Telefonica S.A. (NYSE:TEF), ICICI Bank Limited (NYSE:IBN), Mizuho Financial Group Inc. (NYSE:MFG), and Workday Inc (NYSE:WDAY). All of these stocks’ market caps match STZ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEF 5 34830 -2
IBN 26 849426 -3
MFG 4 14381 -2
WDAY 39 1240146 -2
Average 18.5 534696 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $1671 million in STZ’s case. Workday Inc (NYSE:WDAY) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Constellation Brands, Inc. (NYSE:STZ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately STZ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STZ were disappointed as the stock returned 18.8% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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