Is Constellation Brands, Inc. (STZ) Going to Burn These Hedge Funds?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Constellation Brands, Inc. (NYSE:STZ) to find out whether it was one of their high conviction long-term ideas.

Hedge fund interest in Constellation Brands, Inc. (NYSE:STZ) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that STZ isn’t among the 30 most popular stocks among hedge funds (see the video below). At the end of this article we will also compare STZ to other stocks including Moody’s Corporation (NYSE:MCO), Sempra Energy (NYSE:SRE), and Dell Technologies Inc. (NYSE:DELL) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the latest hedge fund action regarding Constellation Brands, Inc. (NYSE:STZ).

How are hedge funds trading Constellation Brands, Inc. (NYSE:STZ)?

At Q2’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 62 hedge funds held shares or bullish call options in STZ a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Michael Lowenstein Kensico Capital

The largest stake in Constellation Brands, Inc. (NYSE:STZ) was held by Kensico Capital, which reported holding $829.3 million worth of stock at the end of March. It was followed by Matrix Capital Management with a $111.4 million position. Other investors bullish on the company included Two Creeks Capital Management, Citadel Investment Group, and Diamond Hill Capital.

Because Constellation Brands, Inc. (NYSE:STZ) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds that decided to sell off their entire stakes by the end of the second quarter. Intriguingly, Stephen Mandel’s Lone Pine Capital sold off the largest investment of all the hedgies watched by Insider Monkey, valued at an estimated $864.8 million in stock, and Dan Loeb’s Third Point was right behind this move, as the fund said goodbye to about $184.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Constellation Brands, Inc. (NYSE:STZ). We will take a look at Moody’s Corporation (NYSE:MCO), Sempra Energy (NYSE:SRE), Dell Technologies Inc. (NYSE:DELL), and Johnson Controls International plc (NYSE:JCI). This group of stocks’ market caps are similar to STZ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MCO 39 7178921 5
SRE 25 1323401 -6
DELL 40 1937951 3
JCI 18 634680 -7
Average 30.5 2768738 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $2769 million. That figure was $1439 million in STZ’s case. Dell Technologies Inc. (NYSE:DELL) is the most popular stock in this table. On the other hand Johnson Controls International plc (NYSE:JCI) is the least popular one with only 18 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on STZ, though not to the same extent, as the stock returned 5.7% during the third quarter and outperformed the market as well.

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