Is Constellation Brands (STZ) A Good Stock To Buy?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Constellation Brands, Inc. (NYSE:STZ).

Is STZ a good stock to buy? 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 (click for Q1 rankings). At the end of this article we will also compare STZ to other stocks including Agilent Technologies Inc. (NYSE:A), Ferrari N.V. (NYSE:RACE), and Cadence Design Systems Inc (NASDAQ:CDNS) to get a better sense of its popularity.

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a gander at the key hedge fund action encompassing Constellation Brands, Inc. (NYSE:STZ).

Do Hedge Funds Think STZ Is A Good Stock To Buy Now?

At first quarter’s end, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards STZ over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Gates Capital Management, managed by Jeffrey Gates, holds the most valuable position in Constellation Brands, Inc. (NYSE:STZ). Gates Capital Management has a $144.5 million position in the stock, comprising 5.3% of its 13F portfolio. On Gates Capital Management’s heels is Michael Lowenstein of Kensico Capital, with a $105.1 million position; 3.4% of its 13F portfolio is allocated to the company. Other peers with similar optimism include Ryan Pedlow’s Two Creeks Capital Management, Alexander Mitchell’s Scopus Asset Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Freshford Capital Management allocated the biggest weight to Constellation Brands, Inc. (NYSE:STZ), around 5.77% of its 13F portfolio. Franklin Street Capital is also relatively very bullish on the stock, designating 5.65 percent of its 13F equity portfolio to STZ.

Due to the fact that 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 exists a select few hedgies that decided to sell off their full holdings in the first quarter. Interestingly, Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management said goodbye to the largest investment of all the hedgies watched by Insider Monkey, worth about $192.5 million in stock. Oscar Hattink’s fund, BlueDrive Global Investors, also cut its stock, about $64.8 million worth. These transactions 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 Agilent Technologies Inc. (NYSE:A), Ferrari N.V. (NYSE:RACE), Cadence Design Systems Inc (NASDAQ:CDNS), Schlumberger Limited. (NYSE:SLB), Cummins Inc. (NYSE:CMI), The Travelers Companies Inc (NYSE:TRV), and DocuSign, Inc. (NASDAQ:DOCU). This group of stocks’ market valuations match STZ’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
A 42 3464139 -3
RACE 26 1257227 -3
CDNS 30 1490527 -2
SLB 50 1141533 0
CMI 37 817545 -8
TRV 35 409418 1
DOCU 60 3232494 -7
Average 40 1687555 -3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1688 million. That figure was $1232 million in STZ’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand Ferrari N.V. (NYSE:RACE) is the least popular one with only 26 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 overall hedge fund sentiment score for STZ is 76.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately STZ wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on STZ were disappointed as the stock returned 4.7% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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