Should You Buy Constellation Brands, Inc. (NYSE:STZ)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. 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).

Is Constellation Brands, Inc. (NYSE:STZ) going to take off soon? Prominent investors are taking a bullish view. The number of bullish hedge fund bets rose by 1 in recent months. Our calculations also showed that STZ isn’t among the 30 most popular stocks among hedge funds. STZ was in 62 hedge funds’ portfolios at the end of December. There were 61 hedge funds in our database with STZ holdings at the end of the previous quarter.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Gabriel Plotkin Melvin Capital Management

We’re going to take a gander at the latest hedge fund action regarding Constellation Brands, Inc. (NYSE:STZ).

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

At the end of the fourth quarter, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards STZ over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


According to Insider Monkey’s hedge fund database, Stephen Mandel’s Lone Pine Capital has the number one position in Constellation Brands, Inc. (NYSE:STZ), worth close to $829.9 million, amounting to 5.6% of its total 13F portfolio. The second largest stake is held by Kensico Capital, managed by Michael Lowenstein, which holds a $697.3 million position; 15.2% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism comprise Gabriel Plotkin’s Melvin Capital Management, Dan Loeb’s Third Point and Doug Silverman and Alexander Klabin’s Senator Investment Group.

As one would reasonably expect, specific money managers have jumped into Constellation Brands, Inc. (NYSE:STZ) headfirst. Renaissance Technologies, managed by Jim Simons, created the most valuable position in Constellation Brands, Inc. (NYSE:STZ). Renaissance Technologies had $91.9 million invested in the company at the end of the quarter. Ricky Sandler’s Eminence Capital also made a $68.5 million investment in the stock during the quarter. The following funds were also among the new STZ investors: Joel Greenblatt’s Gotham Asset Management, Matthew Tewksbury’s Stevens Capital Management, and Aaron Cowen’s Suvretta 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. We will take a look at Ford Motor Company (NYSE:F), JD.Com Inc (NASDAQ:JD), BT Group plc (NYSE:BT), and Canon Inc. (NYSE:CAJ). This group of stocks’ market values match STZ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
F 33 977186 3
JD 34 2227256 2
BT 9 17627 3
CAJ 6 84612 -2
Average 20.5 826670 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $827 million. That figure was $4360 million in STZ’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Constellation Brands, Inc. (NYSE:STZ) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately STZ wasn’t in this group. Hedge funds that bet on STZ were disappointed as the stock returned 6.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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