Is Constellation Brands, Inc. (STZ) A Good Stock According To Hedge Funds?

After several tireless days we have finished crunching the numbers from the more than 700 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Constellation Brands, Inc. (NYSE:STZ).

Constellation Brands, Inc. (NYSE:STZ) has experienced a decrease in activity from the world’s largest hedge funds lately. STZ was in 61 hedge funds’ portfolios at the end of September. There were 62 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.

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 the 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.

Lone Pine Capital 2015 Q2 Investor Letter

Let’s take a gander at the key hedge fund action encompassing Constellation Brands, Inc. (NYSE:STZ).

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

At Q3’s end, a total of 61 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in STZ over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


The largest stake in Constellation Brands, Inc. (NYSE:STZ) was held by Lone Pine Capital, which reported holding $929.7 million worth of stock at the end of September. It was followed by Kensico Capital with a $922.3 million position. Other investors bullish on the company included Melvin Capital Management, Third Point, and Melvin Capital Management.

Because Constellation Brands, Inc. (NYSE:STZ) has witnessed falling interest from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their full holdings last quarter. Intriguingly, John Armitage’s Egerton Capital Limited dumped the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $210.3 million in call options, and Matthew Knauer and Mina Faltas’s Nokota Management was right behind this move, as the fund sold off about $146.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.

Let’s now take a look at 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 Altaba Inc. (NASDAQ:AABA), Baxter International Inc. (NYSE:BAX), Telefonica S.A. (NYSE:TEF), and HP Inc. (NYSE:HPQ). This group of stocks’ market caps resemble STZ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AABA 87 16329027 -8
BAX 43 4390199 2
TEF 5 5626 -2
HPQ 35 1086333 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.5 hedge funds with bullish positions and the average amount invested in these stocks was $5.45 billion. That figure was $6.31 billion in STZ’s case. Altaba Inc. (NASDAQ:AABA) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 5 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AABA might be a better candidate to consider a long position.

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